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Interest Rates

Interest Rates

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Published by Amanda Brown
Interest Rates
Interest Rates

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Published by: Amanda Brown on May 15, 2013
Copyright:Attribution Non-commercial

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08/18/2013

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Interest Rates &Investment Demand
AP Macroeconomics
 
What is Investment?
Money spent or expenditures
on:
 – 
New plants (factories)
 – 
Capital equipment (machinery)
 – 
Technology (hardware & software)
 – 
New Homes
 – 
Inventories (goods sold by producers)
 
Expected Rates of Return
How does business make investment decisions?
 – 
Cost / Benefit Analysis
How does business determine the benefits?
 – 
Expected rate of return
How does business count the cost?
 – 
Interest costs
How does business determine the amount ofinvestment they undertake?
 – 
Compare expected rate of return to interest cost
If expected return > interest cost, then invest
If expected return < interest cost, then do not invest

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