Question

if you owned a business and were considering increasing your level of investment, what would be the most important factor (based on those presented in the textbook) you would consider in determining how much you planned to invest? Explain why you chose that factor.

Answer 1

If I am owner of a small business, then the most important determinant to increase the investment will depend on level of economic activities in a country. When in an economy there is an increase in aggregate demand, this will increase household incomes that lead to increase consumption, therefore producing a further increase in aggregate demand. This increase will induce me to increase the investment, this multiplier effect will be even stronger thus enabling me increase profits. Thus the determinant - level of economic activity, will play the most important role in driving my investment increase.