Solved: Three steel bolts are to be used to attach the

Macroeconomics 3/23/2016 6. Expectations Expectations impact consumers’ confidence (how they feel) that may or may not be reflected in A change in real spending consumption {lay off Foreclosure Terrorist attack} is what Influences them.  More components of GDP: Investment, Government Spending, and Exports  Investment Spending - Investment spending: 18% pf total output - Spending by businesses on: 1. New capital: tools, equipment, machinery, factories  Business fixed investment  Nonresidential Fixed Investment  These 2 terms mean the same thing as capital The biggest component of investment: 75% The biggest component of investment spending so, 75% of the 18% 2. Residential investment = new home 25%  4% subprime market = Shaky credit  4% of 25% of 18% 3. Changes in inventory = 3%  Still count the stuff people didn’t buy  Increase in inventory are ADD to GDP  Decrease in inventory are subtracted  Nature of investment spending - Investment spending is the GDP component that fluctuates (moves up or down) the most  Sensitive, moody  Consumer spending = stable(more) – linked to (generally) more stable determinants  Consumer spending- biggest, income is biggest claim to fame  Determinants of investment spending 1) Expectations- changes by businesses  Expected rate of return on the investment spending will the new the new equipment, building, tool; pay off Long-run Short-run  Expected future sales (demand) and profit 2) Interest rates- figure into many formula  Interest rates are PRICES—NOT JUST 1 RATE  Rates on long-term debt usually higher  Higher rate rejects more risk- why more {Divorce, children, disaster, sick, etc…)  Rates different but tend to move together  Higher interest rates- less investment  Lower rates- stimulate more investment 3) Technology and innovation  Advances spur investment spending  More efficient ways of communicating, producing, and distributing  New products require new equipment