Macroeconomic Objectives and Investment Determinants
Macroeconomic Objectives and Economic Growth
Item 3. The set of macroeconomic objectives can be summarized in one: achieving a level of economic growth that meets increasing requirements, ensuring full employment of resources, and maintaining stable prices.
A Vision of the Whole
The economic reality of a country is influenced by factors that affect economic progress:
- Internal market forces: Changes in the population, consumer behavior, investment, etc.
- External shocks: Political conflicts, wars between countries, droughts, natural disasters, etc.
- Government actions: Directing and controlling the economy through fiscal and monetary policy, etc.
Internal Market Forces
Market forces are expressed in the interplay of supply and demand. The production level of a country depends on the amounts that companies are willing to sell and consumers are willing to buy. Therefore, we must ask ourselves what factors influence the willingness of these operators to buy or sell.
Consumption and Savings
In macroeconomics, consumption is the total expenditure incurred by households on goods and services in a given period. It includes both durable and non-durable goods. It does not include the purchase of housing, which is considered investment spending.
Factors Influencing Consumption
Consumption depends on several key elements:
- Disposable income: Consumption increases as income rises. However, it should be noted that permanent income is as important as current income.
- Interest rates: Credit facilities and interest rates also influence consumption levels.
- Life cycle: The life cycle of individuals affects their spending and saving habits.
The Importance of Savings
Individuals save for various reasons, such as:
- Ensuring protection against possible situations like illness or unemployment.
- Being able to carry out projects that require significant expenditures.
- Obtaining extra income by investing savings.
Economic Investment
Economic investments involve the acquisition of capital goods to produce other goods. Investment costs are the key to future growth. In national accounts, investment basically consists of:
- Investment in plant and equipment.
- The construction of housing for family use.
Types of Investment
- Replacement investment: Done to replace worn equipment and machinery.
- Renewal investment: Aims to replace equipment (such as computers) that still works but has become obsolete.
- Extension or addition: Purchasing new equipment to increase production capacity.
Determinants of Investment Demand
- Interest rates: To invest, funding is needed. When investing with borrowed money, one must consider the price of the loan (i.e., the interest rate). Comparing that interest to the expected performance or profitability is the key to the decision.
- Capacity utilization: If the company does not use its full capacity, there is no reason to invest.
- Confidence in the future: Investment decisions are critical choices that determine the future life of the company for several years.