MEANING OF INDUCED INVESTMENT AND FACTORS (DETERMINANTS) OF INDUCED INVESTMENT

• MEANING OF INDUCED INVESTMENT AND FACTORS
  (DETERMINANTS) OF INDUCED INVESTMENT
• MACRO ECONOMICS
• MEANING OF INVESTMENT
• INVESTMENT MEANS PURCHASING OF DIFFERENT KIND OF SHARES ,STOCKS AND INVESTING CAPITAL
• ACCORDING TO KEYNES:-

1. FINANCIAL INVESTMENT ( ONLY TRANSFER OF OWNERSHIP)
2. REAL INVESTMENT

• REAL INVESTMENT REFERS TO THAT INVESTMENT WHICH IS MADE IN ORDER TO SET UP A NEW FACTORY OR TO OPEN A NEW ENTERPRISES

• MEANING OF REAL INVESTMENT

1. ADDITION MADE TO THE EXISTING CAPITAL ASSETS WHICH RESULT IN AN INCREASE IN EMPLOYMENT.
2. INVESTMENT IN ECONOMICS REFERS TO THE PURCHASE OF SUCH GOODS WHICH ENHANCE OVERALL PRODUCTION CAPACITY IN THE DOMESTIC ECONOMY

1. EXPENDITURE ON FIXED ASSETS
2. IT MEANS ADDITION TO THE ECONOMY’S EXISTING STOCK OF CAPITAL

• REAL INVESTMENT MEANS

1. BUSINESS FIXED INVESTMENT OR BUSINESS FIXED FORMATION
2. INVESTMENT ON BUSINESS INVENTORY
3. INVESTMENT ON RESIDENTIAL HOUSING

• MEANING OF INDUCED INVESTMENT
• INDUCED INVESTMENT OS THAT INVESTMENT WHICH IS GOVERNED BY

1. INCOME
2. PROFIT

• IT INCREASES WITH INCREASE IN INCOME AND DECREASES WITH DECREASE IN PROFIT  AND DECREASE IN INCOME
• IT IS INCOME ELASTIC
• WHEN AN INCREASE IN INVESTMENT IS DUE TO INCREASE IN CURRENT LEVEL OF INCOME AND PRODUCTION ,IT IS KNOWN AS INDUCED INVESTMENT
• DETERMINANTS OF INDUCED INVESTMENT
• MEANS WHETHER THE ENTREPRENEUR WOULD FEEL TEMPTED TO MAKE ANY INVESTMENT OR NOT.
• INFLUENCED BY :_

1. MARGINAL EFFICIENCY OF CAPITAL:- EXPECTED PROFITABILITY BY THE USE OF ONE MORE UNIT AND IT HAS TWO DETERMINANTS.

a)    PROSPECTIVE YIELD:- AGGREGATE NET RETURN EXPECTED FROM IT DURING LIFE TIME

b)    SUPPLY PRICE:- IS THE COST OF PRODUCING ASSET OF THAT KIND,NOT THE SUPPLY PRICE OF AN EXISTING ASSET. ALSO CALLED REPLACEMENT COST

2. RATE OF INTEREST:- COST OF MONEY INVESTED.ACCORDING TO KEYNES RATE OF INTEREST IS DETERMINED BY THE SUPPLY OF MONEY AND DEMAND FOR MONEY.

• INVESTMENT DECISIONS
• MEC IS COMPARE WITH RATE OF INTEREST
• LIKE MEC IS 12%
• RATE OF INTEREST IS 10% THEN INVESTMENT IS TAKEN
• BUT IF INTEREST IS 12%
• FACTORS OR INVESTMENT FUNCTION

1. TECHNOLOGICAL ADVANCEMENT
2. DISCOVERY OF NATURAL RESOURCES
3. GOVT POLICIES
4. FOREIGN TRADE
5. POLITICAL ENVIRONMENT
6. EXPECTATION
7. RATE OF POPULATION GROWTH
8. TERRITORIAL EXPANSION
9. THE PRICE LEVEL
10. THE MARKET STRUCTURES
11. AVAILABILITY OF FINANCE
12. CONDITIONS IN THE LABOUR MARKET
13. THE PRESENT STOCK OF CAPITAL GOODS
14. AGGREGATE DEMAND

• INVESTMENT FUNCTION OR FACTORS INFLUENCING INVESTMENT
• TECHNOLOGICAL INVESTMENT AND INNOVATIONS:-DUE TO INTRODUCTION AND DEVELOPMENT OF LABOUR SAVING AND CAPITAL MACHINES IN AGRICULTURE AS WELL AS MANUFACTURING INDUSTIRES,THE VOLUME OF INCREASE IN THE INVESTMENT
• DISCOVER OF NATURAL RESOURCES:-AS MORE SOURCES OF NATURAL RESOURCES LIKE MINERAL,PETROL ETC ARE DISCOVERED.MORE DEMAND FOR INVESTMENT TO EXPLOIT THESE OPPORTUNITIES OR VICE VERSA
• GOVERNMENT POLICIES: INVESTMENT DECISION ARE INFLUENCED BY THE GOVERNMENT’S MONETARY AND FISCAL POLICY. WHEN CHEAP MONETARY POLICY IS ANNOUNCED BY RBI THEN DEMAND FOR INVESTMENT INCREASE DUE TO AVIALBILITY OF LOAN AT CHEAP RATE. OR VICE VERSA. IT IS ALSO AFFECTED BY GOVERNMENT’S POLICY RELATING TO TAXATION AND EXPENDITURE.
• EXPECTATIONS:- BUSINESS INVESTMENT IS ALSO DEPENDS ON THE EXPECTATION IF THERE ARE MORE DEMAND AND MORE SALE AND MORE PROFIT THEN INVESTMENT WILL BE MADE MORE OR VICE VERSA
• POLITICAL ENVIRONMENT:- IF THE POLITICAL ENVIRONMENT OF THE COUNTRY IS PEACEFUL AND IT WILL HAVE A FAVORABLE IMPACT ON THE INVESTMENT
• FOREIGN TRADE:- POSSIBILITY OF EXPANSION OF COUNTRY’S FOREIGN TRADE WILL BOOST MORE INVESTMENT OR VICE VERSA
• RATE OF POPULATION GROWTH:-IF THE POPULATION OF THE COUNTRY GROWING AT RAPID SPEED THERE WILL BE MORE DEMAND AND IT WILL BOOST THE INVESTMENT
• THE PRICE LEVEL: ALSO INFLUENCED BY THE PREVAILING PRICE LEVEL IN THE COUNTRY. IF CHANCES OF RISE IN PRICES ARE MORE THE CHANCES TO EARN PROFIT WILL BE MORE AND VICE VERSA
• TERRITORIAL EXPANSION: IF ON ACCOUNT OF GROWTH OF POPULATION NEW TERRITORIES ARE OPENED UP,WILL NEED MORE PUBLIC AND PRIVATE INVESTMENT
• THE MARKET STRUCTURE:- IF THERE IS MORE COMPETITION THE EACH PRODUCER WILL UPGRADE ITS PRODUCTION SYSTEM SO MORE INVESTMENT WILL BE REQUIRED OR VICE VERSA
• AVAILABILITY OF FINANCE:-IF AVAILABILITY OF FINANCE IS EASY IT WILL HAVE MORE FAVORABLE IMPACT ON INVESTMENT
• CONDITIONS IN THE LABOUR MARKET” IF REQUIRED WORKFORCE IS EASILY AVAILABLE INVESTMENT WILL BE FAVORABLY EFFECTED
• IF THE EXISTING STOCK OF  CAPITAL GOODS IS IN EXCESS THEN LITTLE INVESTMENT
• IF AGGREGATE DEMAND IS INCREASING CONTINUOUSLY IT WILL BOOST MORE INVESTMENT
• INVESTMENT IN PUBLIC SECTOR:

1. DEFENSE OF THE COUNTRY
2. ECONOMIC DEVELOPMENT
3. SOCIAL WELFARE
4. INDEPENDENT OF PROFIT

• MEASURE TO STIMULATE PRIVATE INVESTMENT

1. REDUCTION IN THE RATE OF INTEREST
2. REDUCTION IN TAXES
3. POLICY OF WAGE CUT BY REDUCING THE REAL WAGES. PRICE LEVEL SHOULD BE RAISED,.
4. INCREASE IN GOVT EXPENDITURE
5. PRICE SUPPORT POLICY: ESSENTIAL GOODS ARE BOUGHT AND SOLD THE GOVT IN THE OPEN MARKET
6. ABOLITION OF MONOPOLISTIC TENDENCIES
7. PUMP PRIMING:THE POLICY OF INCREASING PUBLIC INVESTMENT WITH A VIEW TO STIMULATING PRIVATE INVESTMENT IS CALLED PUMP PRIMING