Introduction Theoretical Theories Of Investment Economics Essay

Introduction Theoretical Theories Of Investment Economics Essay Investment is a strategic variable in the determination of the level and growth of income. It has been defined in various ways by various economists. Generally, it refers to any act of spending with a prospective yield. To the economist, it refers precisely to the process of capital formation whereby there is net addition to the existing assets including inventories and goods in the pipeline of production. It is the actual production of capital equipment, tools and other produced means of production. Investment might be capital formation: Financial Capital and Physical or real capital. There are gross, net and autonomous investments where: Gross Investment= Net Investment + Autonomous Investment Autonomous Investment also known as Government Investment refers to investment which remains the same whatever the level of income. It refers mainly to the investment made on houses, roads, public buildings and other parts of Infrastructure made by the government. Moreover Gross investment is the amount that a company has invested on an asset or business without taking factoring in depreciation into consideration. In other words it is the total amount of money spent for the creation of new capital assets like Plant and Machinery, Factory Building etc. It is the total expenditure made on new capital assets in a period. Furthermore in economics, Net Investment refers to an activity of spending which will cause an increase in the availability of fixed capital goods or means of production. It is the total spending on new fixed investment minus replacement investment, which simply replaces depreciated capital goods. In fact it is Gross investment less Capital Consumption during a period of time. Private Investment depends on various categories of variables. So various theories of investment have been presented and they are provided overleaf:- Fisher Theory of Investment This theory was developed in 1930. Fishers theory was originally developed as a theory of capital, but as he assumes that all capital is circulating, then it is just as proper to conceive of it as a theory of investment. It was provided by Fisher that during the production process, all capital is used up, such that a stock of capital K did not exist. In fact all capital is just investment. There was a condition imposed by Fisher stating that Investment in any given period of time will yield outputs in the nest period. This is illustrated through the equation below: Y2=F [N,I1] Y2 = Output in period 2 I1 = Investment done in period 1 N = labor Assuming a world with only two periods of time, t=1, 2. Investment done in period 1 yields output in period 2. Moreover Fisher assumes that labor is constant Keynesian Theory The Keynesian theory was developed after that John Maynard Keynes (1936) followed suit of the Fisher theory. Keynes stated that there is an independent investment function in the economy. An important aspect of the Keynesian theory is that although savings and investment must be identical, ex-post savings and investment decisions are made by different decision makers and there is reason why ex-ante savings should equal ex-ante investment. According to Trygve Haavelmo (1960) The Keynesian approach places far less emphasis on the adjustment nature of investment. Instead, they tend to have a more behavioral take on the investment decision. Namely, the Keynesian approach argues that investment is simply what capitalists do. Every period, workers consume and capitalists invest as a matter of course. They believe that the main decision is the investment decision; the capital stock just follows from the investment patterns rather than being an important thing that needs to be optimally deci ded Accelerator Principle Theory Over the past two decades, the acceleration principle has played a vital role in the theory of Investment. In fact, this theory was developed before the Keynesian theory; however it became apparent after Keynes investment theory in the twentieth century. The accelerator is generally associated with the name of J.M Clark though it seems to have been first developed by the French economist Albert Aftalion. The basis of the accelerator principle is based on the fact that changes in factors affecting national income would affect investment. In other words, big percentages changes are witnessed due to small in consumer spending. This type of investment is known as induced investment since; it is induced by changes in consumption and income. Furthermore, the accelerator is just the numerical value of the relationship between the increases in investment caused by an increase in income. Normally, it will be positive when national income increases. On the other hand, it might fall to zero if the national output or income remains costant. Neo-Classical Theory In 1971, the neoclassical approach which is a version of the flexible accelerator model was formulated by Jorgenson and others. Flexible Accelerator Model is a more general form of the accelerator model. It is assumed that firms will choose only a fraction, a, of the gap between desired and current actual level of capital stock each period. The larger the gap between the desired capital stock and the actual capital stock, the greater a firms rate of investment. This is illustrated below: I = a [K* -K-1] I = planned net investment during period t K* = desired level of capital stock K-1 = current actual level of capital stock at beginning of period t (end of period t-1) a = adjustment factor, 0 The desired capital stock is proportional to output and the investors cost of capital which in turn depends on the price of capital goods, the real rate of interest, the rate of depreciation and the tax structure. It is important to note that most recent empirical works are based on Jorgenson investment function. In fact Jorgenson provides that a decrease in interest rate would cause an increase in investment by reducing the cost of capital. In 1967, Hall and Jorgenson provide the Hall Jorgenson Model of Investment. The model illustrates that the level of capital stock that is chosen by an optimizing firm depend on various economic features like the production function, depreciation rates, taxes, interest rates. In fact Hall and Jorgenson had used the neoclassical theory of optimal capital accumulation to analyze the relationship between tax policy and investment expenditures. They concluded that tax policy is very effective in changing the level and timing on Investment expenditures. Q theory of Investment The Q theory of Investment, introduced by Tobin (1969) is a popularly accepted theory of real investment. In fact it is a basic tool used for financial market analysis.It is a positive function of Qwhich can be defined as the ratio of the market value of the existing capital to the replacement cost of capital. Q can be defined as follows: Q=Stock Value of Firm/Replacement cost of Investment Q is a barometer for investors as it tends to assess a firms prospect. When Q is greater than one, the firm would make additional investment because the profits generated would be greater than the cost of firms assets. If Q is less than one, the firm would be better off selling its assets instead of trying to put them to use as the firms value is less than what it cost to reproduce their capital. The ideal state is where Q is approximately equal to one denoting that the firm is in equilibrium. The Q theory of investment can also depend on adjustment cost. Literature on this issue was done by Eisner and Strotz (1963), Lucas (1967), Gould (19678) and Tredway (1969). Later Mussa (1977), Abel (1979, 1982) and Yoshikawa (1980) showed that Investment is an increasing function of the shadow price of installed capital. This is such only when there are convex adjustment costs. Marginal Q Model of Investment Moreover Abel (1981) and Hayaski (1982) introduced the marginal q model associated with smooth convex costs of adjustments. They assume that capital market are perfect, such that investment is undertake until the marginal value of an additional unit of investment has decreased to the exact value of the riskless interest rate. Abel (1981) describes marginal q as The optimal rate of Investment is an increasing function of the slope of the value function with respect to the capital stock (marginal q). Abe; states that an increase in any factors that affect price can cause an increase, a decrease or even do not affect investment rate. The effect will depend on the covariance sign of the price with a weighted average of all prices. Hayaski (1982) provides that under linear homogeneity, marginal q is equal to average q. However when marginal q is not equal to average q, it is marginal q which is relevant for investment. In fact marginal q is just a stochastic version of the Q theory of Inv estment. Neo-Classical theory and Q theory of Investment (Panageas 2005) According to Stravos Panageas (2005), the neoclassical theory provides that Investment and the stock market are linked through the Tobin q. This is because the net present value of the company is the value of the company, so when the stock market is rising, there should be an increase in Investment to equate the Q ratio. This involves speculation. Panageas (2005) states that If firms maximizes share prices, then Investment reacts to speculate overpricing. However he also provides that when investment is controlled by shareholders, who do not have perfect access to the market, the link between investment and speculation will not hold. There might be costs to access the market like capital gains taxes, price pressure etc. The model used by Panageas also aid to distinguish between rational and behavioural theories of asset pricing anomalies. Models associated with non-convex costs There are also models with Non-convex costs of adjustments. King and Thomas (2006) states Non-convex adjustment costs imply distributed lags in aggregate series similar to those generated by convex costs, because they stagger the lumpy adjustments undertaken by individual firms in response to shocks. These non- convex costs is linked with the investment theory. A number of influential partial equilibrium studies (Caballero and Engel, 1999; Cooper, Haltiwanger and Power, 1999; Caballero, Engel and Haltiwanger, 1995) have showed that these investments models cause great changes in investment demand following large aggregate shocks. Theories of Interest Rate There is a vast spectrum of interest rate at a given period of time in a country. The interest rate will depend on several variables such as nature of loans, duration of loans, credit worthiness of borrower, hire purchase agreements. When those variables are held constant, the rate of interest or pure interest rate is obtained. The most common theories used to explain interest rate determinations are the Loanable Funds Theory (Neo Classical) and the Liquidity Preference Theory (Keynesian Theory). Furthermore the ISLM model is held for a fully integrated approach. Loanable Funds Theory/ Neo Classical Theory We will first consider the Loanable funds theory which is also known as the neo classical theory of interest. It was developed by the Swedish economist Knot Wickshell (1851-1926). The rate of interest is obtained through the demand and supply of loans in the credit market. The demand for loan is mainly to invest, to consume and to hoard. Traditionally the demand curve will slope downward because a fall in interest rate will attract borrowings. The supply of loans comes from 4 important sources. These are saving, bank money, dishoarding and disinvestment. The supply curve will be upward sloping since a higher rate of interest will induce these sources to supply more loans. So according to the Loanable funds theory, the rate of interest will be determined where these two curves intersect. This is shown below: Rate of interest SL R1 Q1 DL Figure 1.1 Loanable Funds According to figure 1.1, the equilibrium rate will be R1 and Q1 will be the amount of loan that are demanded and supplied. Interest rate either above or below the equilibrium rate will be restored to the equilibrium rate through upward and downward pressure. Changes in the demand and supply of loan will alter interest rate. For example, technological changes might increase the demand for loanable funds. So according to this theory, the rate of interest is the price that equate the demand for and the supply of loanable funds. Liquidity Preference Theory/Keynesian Theory The Liquidity Preference Theory was developed by Keynes. Keynes described interest rate as a purely monetary phenomenon which is determined by the demand and supply of money. Keynes identified 3 reasons why people would prefer liquidity rather that assets. These are: Transactions demand for money The transaction demand is the demand to hold money in order to meet day to day transactions. The amount of cash which the individual will keep in his possession will depend on his size of his personal income and the length of time between his pay days. Precautionary demand for money The precautionary demand is the demand to hold money in order to meet unforeseen events such as illness, being unemployed. The amount of money that the individual will hold for precautionary motives will depend on the individuals condition, economic and political conditions which he lives. The size of his income, nature of the person and foresightedness will also affects the precautionary motives of a person. Speculative demand for money Speculative demand is the demand to hold money as oppose to the holding of bonds. There is an inverse relationship between bonds and the rate of interest. When the price of bond tends to rise, rate of interest will fall due to the inverse relationship, so people will be buying bonds to sell them later when the price actually rises. However when bond prices are expected to fall leading to a rise in the rate of interest, people will sell bonds to avoid losses. According to Keynes, when the interest rate is high, speculative demand for money will be low and vice versa. The supply of money is the amount of money in circulation at a specified time period. It is the central bank which will be determining the supply of money. It is fixed at any given period of time. According to the Liquidity Preference theory, the rate of interest is determined where these two curves intersect as illustrated below: R1 Liquidity Preference (LP) Quantity of money Q1 Q2 S2 Rate of Interest S1 R2 Figure 1.2 As illustrated by figure 1.2, the money supply is represented by S1Q1 along the LP function. The rate of interest will be R1 where the supply of money intersects the LP function. If there is an increase in the money supply to S2Q2, there will be an excess in the supply of money causing people to adjust their demand portfolio by purchasing bonds. The price of bonds will rise leading to a fall in interest rate to R2. Investment/Saving-Liquidity Preference/Money supply (IS-LM) Model The previous two theories does not take into consideration in changes in national income to affect the rate of interest. The IS-LM model is used to arrive at a determinate solution. In fact it is part of the Keynesian theory. In the IS-LM model, interest rate is the only determinant of investment. The IS-LM model assumes that a higher interest rate will result in lower investment and vice versa. In this model interest rate will change due to changes in factors like business activity, credit creation by a bank, confidence, the level of national debt, inflows of funds and even international forces. Keynes provided the investment schedule where interest rate is the only primary determinant of investment. The schedule shows the amount of investment that firms would carry out at each rate of interest.

Religious Faith vs Science and Reason :: Essays Papers

Religious Faith vs Science and Reason Throughout history, conflicts between faith and reason took the forms of religion and free thinking. In the times of the Old Regime, people like Copernicus and Galileo were often punished for having views that contradicted the beliefs of the church. The strict control of the church was severely weakened around the beginning of the nineteenth century when the Old Regime ended. As the church's control decreased, science and intellectual thinking seemed to advance. While the people in the world became more educated, the church worked harder to maintain its influential position in society and keep the Christian faith strong. In the mid-nineteenth century, the church's task to keep people's faith strong became much harder, due to theories published by free thinkers like Charles Darwin, Charles Lyell, David Friedrich Strauss, and others. These men published controversial theories that hammered away at the foundation on which the Christian church was built. As the nineteenth century progres sed, more doubts began to arise about the basic faiths of the Christian church. The impact these men had on religious thought was tremendous. Some of them are the starting points for many of the controversies existing today. Of all the scientists, historians, and philosophers in the nineteenth century, the most influential and controversial was Charles Darwin. Born in 1809, Charles Darwin always had an interest in the nature, so he chose to study botany in college. His strengths in botany led him to become the naturalist on the H.M.S. Beagle. On a trip to South America, he and the rest of the crew visited the near by Galapagos Islands in the Pacific Ocean. It was there he noticed many different variations of the same general plants and birdshe saw previously in South America. He also observed ancient fossils of extinct organisms that closely resembled modern organisms. By 1859, all of these observations inspired him to write down his theories. He wanted to explain how evolution had occurred through a process called natural selection. In his published work, On th e Origin of the Species by Means of Natural Selection, or the Preservation of Favoured Races in the Struggle for Life, or On the Origin of Species for short, Darwin stated that, "new species have come on the stage slowly and at successive intervals."(1) He also said, "old forms are supplanted by new and improved forms," and all organisms play a part in the "struggle for life. Religious Faith vs Science and Reason :: Essays Papers Religious Faith vs Science and Reason Throughout history, conflicts between faith and reason took the forms of religion and free thinking. In the times of the Old Regime, people like Copernicus and Galileo were often punished for having views that contradicted the beliefs of the church. The strict control of the church was severely weakened around the beginning of the nineteenth century when the Old Regime ended. As the church's control decreased, science and intellectual thinking seemed to advance. While the people in the world became more educated, the church worked harder to maintain its influential position in society and keep the Christian faith strong. In the mid-nineteenth century, the church's task to keep people's faith strong became much harder, due to theories published by free thinkers like Charles Darwin, Charles Lyell, David Friedrich Strauss, and others. These men published controversial theories that hammered away at the foundation on which the Christian church was built. As the nineteenth century progres sed, more doubts began to arise about the basic faiths of the Christian church. The impact these men had on religious thought was tremendous. Some of them are the starting points for many of the controversies existing today. Of all the scientists, historians, and philosophers in the nineteenth century, the most influential and controversial was Charles Darwin. Born in 1809, Charles Darwin always had an interest in the nature, so he chose to study botany in college. His strengths in botany led him to become the naturalist on the H.M.S. Beagle. On a trip to South America, he and the rest of the crew visited the near by Galapagos Islands in the Pacific Ocean. It was there he noticed many different variations of the same general plants and birdshe saw previously in South America. He also observed ancient fossils of extinct organisms that closely resembled modern organisms. By 1859, all of these observations inspired him to write down his theories. He wanted to explain how evolution had occurred through a process called natural selection. In his published work, On th e Origin of the Species by Means of Natural Selection, or the Preservation of Favoured Races in the Struggle for Life, or On the Origin of Species for short, Darwin stated that, "new species have come on the stage slowly and at successive intervals."(1) He also said, "old forms are supplanted by new and improved forms," and all organisms play a part in the "struggle for life.

Langston Hughes and Alice Walker Essay

Langston Hughes’ Still Here and Dream Deferred are two poems depicting emotions driven by frustrations in life. These literary works may appear simple, but they both depict the social and political conditions during the time these poems were written. Langston Hughes, a renowned writer during the Harlem Renaissance, is famous for his works on social class and race relations in America. His poem Dream Deferred, as the title suggests, describes various detrimental effects frustration can bring to a person. Literary tools used were imagery, similes, and metaphors in question form to suggest these detrimental effects. In the poem, effects are described as the raisin in the sun, like a sore that festers, like a stinking rotten meat, and like a heavy load. The two poems by Langston both expressed the social and political conditions in his time and its implications to the lives of the African-Americans, then. During Langston’s time, African-American exercised limited rights that may have hindered them from attaining their dreams in life. Langston sees that this problem has caused great pain to the unfulfilled person and to the people surrounding him. The short story Everyday Use by Alice Walker, on the other hand, discusses how culture and heritage should be valued and recognized, specifically that of the African-Americans. Alice Walker, an American writer, like Langston, also writes about race and gender relations. Her short story illustrated the conflict in appreciating the African-American culture by presenting the redefined and the practical ways of doing this. The writer made use of the quilt as the representation of the culture and heritage of the African-American. The quilt, seen as the product of quilting, is said to be the refined way of seeing its worth while knowing the process of quilting represents the practical way and more meaningful way of appreciating the culture and heritage. The story suggests that heritage and culture should not be equated to tangible things and should be understood thoroughly to see its worth. Langston and Walker, through their works, showed how African-Americans feel and what their personal struggles are in two different scenarios. Indeed, their works never failed to provide inspiration to those who can relate. References: Hughes, L. (1951). Dream Deferred. Retrieved May 5, 2009, 2009, from http://www. poemhunter. com/i/ebooks/pdf/langston_hughes_2004_9. pdf Hughes, L. Still Here. Retrieved May 5, 2009, from http://www. poemhunter. com/i/ebooks/pdf/langston_hughes_2004_9. pdf Walker, A. (1973). Everyday Use. Retrieved May 5, 2009, from http://xroads. virginia. edu/~ug97/quilt/walker. html

Choose a character from Everyman Essays

Choose a character from Everyman Essays Choose a character from Everyman Paper Choose a character from Everyman Paper Choose a character from Everyman. How does this character reflect one or two themes from the text?  Everyman is a medieval play written by an anonymous author. The central theme of the play is that when the time to leave the world is approaching, an individual may end up being betrayed by his or her family and friends, and only good deeds is important at the end. God and religion are also important aspects in this Middle Age drama, because it portrays Everyman’s progress from fear of death to a â€Å"Christian resignation that is prelude to redemption† (115). The characters in the play consist of subjects, verbs, and objects. The main character in the drama is Everyman, but the name is a representation of mankind in general. Everyman asks other characters to follow him on his journey to death. Firstly, Everyman goes to Fellowship who is his friend, but the first to forsake him by suggesting drinking or socializing with women instead of going on journey of death. Secondly, he asks his family members, Kindred and Cousin, to join him on his journey. However, Kindred and Cousin are disloyal to Everyman by reminding him of the things he has never done for them. Thirdly, Everyman refers to Goods, which are Everyman’s belongings. However, he is disappointed to find out that he cannot take his material possessions with him to his grave. Fourthly, Everyman calls upon Good Deeds. Good Deeds is unable to accompany Everyman immediately, but recommends first going and speaking to knowledge. Lastly, Everyman takes Good Deed’s advice and goes to Knowledge. Knowledge leads Everyman to Confession in order for Everyman to acknowledge his sin and be forgiven. Good Deeds rises again and Everyman asks Good Deeds, Beauty, Strength, Discretion, and Five Wits to join him on his journey to death. Although they all agree and follow him, they run away when they approach his grave except for Good Deeds. Therefore, by closing of the play the audience can conclude that Good Deeds is the only character who did not betray Everyman. In conclusion, Everyman is a medieval theater piece that teaches a lesson to the readers about the importance of life, which is that the things an individual does for others during his lifetime are what counts at the end of one’s life. Everyman first thought his family, friends, and belongings would be there when he dies, but realizes that none of that matters when life ends.

Wilfred Owen

Wilfred Owen It could be said that all of war poet Wilfred Owen 's work has a discernible purpose; this being the destructive capacity of war, and its ultimate futility. What remained constant throughout Owen 's career as a war poet was his ability to communicate his purpose successfully to the reader, through his style and technique. Some of his poems like Dulce et decorum est demonstrate Owen 's initial purpose in protesting against the war by means of definitive style and technique. In poems like Futility and Spring Offensive Owen 's purpose is centred around conveying to the reader the abnormality of war, his style and technique consolidating this purpose.Within Owen 's early poetry his purpose can be found easily, as much of the intended meaning lies on a surface level. Anger and disgust were the fundamental sentiments that permeated these poems, his intent; to reprimand those at home who ignorantly urged the doomed soldiers on to war.Owens Park Tower and Beetham Tower from BurnageA poem who se style and technique largely illuminate this purpose are Dulce et decorum est. The title is ironic, a Latin mantra used during the war to tempt soldiers into battle, roughly translated into 'It is noble to die for one's country.' Owen mocks this concept during the poem, ultimately rendering the notion of patriotism injurious and detrimental to man. This was intended to shock civilians at home, who were convicted that war was in fact noble and glorious. Continuing, Owen seems to look back on the event as it were a recurring nightmare, the ' haunting flares ' of the Five-nines foreshadowed by the haunting image of his dying friend. The mood of Dulce et decorum est is angry and condemning. Owen 's purpose is clearly conveyed through this accusation, in that he felt war was not glorious and the...

Robber Barons Vs. Captains of Industry Essays

Robber Barons Vs. Captains of Industry Essays Robber Barons Vs. Captains of Industry Essay Robber Barons Vs. Captains of Industry Essay Robber Barons Vs. Captains of Industry In comparison between robber barons and captains of industry, most of these people are considered captains of industry. This is because most of the given people all affected the country and the business world positively for reasons that are stated as well as others. Although a couple people are obviously Robber Barons, for example Cornelius Vanderbilt, most of the rest are obviously captains of industry, donating money, making money and becoming a key reason for how the business industry became as fair as it is now. All of these people have in some way either contributed to the increase of productivity, providing more jobs, or expanding the market in a very crucial way. A very important reason why these eight guys would be considered captains of there industries is because the captain of our industries today are also doing things that are going to help this country that kinda relate what they were doing back then. Back then they were doing many thing to help out there country for example Henry Frick began buying coal mines, and he eventually controlled 80 percent of the coal output of Pennsylvania. Also, another example of this would be James hill and how he started his own business called the St. Paul, Minnesota Manitoba Railway Company, and expanded until his production of agricultural and other products carried to the rest of the country. He helped out the country a lot, and really stepped it up a notch and showed the country what technology is about. Not only was he making billions of dollars but he was also giving away about 58% of all of his money to charity every year to people who need the money a lot more that he does. To me I think that the captain of industries today and the ones from back then really relate to each other a lot, in doing good things for the country. Another reason that these men were considered captains of industry instead of robber barons has to do with the amount of money they gave away. John D. Rockefeller alone gave away more then 80 million dollars before he died and Henry Fick gave away 15 million and the rights to his mansion so a museum could be built. Andrew Carnegie believed that men who died rich, died isgraced, which showed that he was a charitable contributor to the things he cared most about. Granted some of them held their money a little tighter then others many of them gave away more then enough to schools and libraries and other establishments that bettered America. The final reason that these people are very important captains of industries are because they did what was needed to be done to get make their company successful, sure they stepped on a few people on the way up but it was only to better their own company. For example, Carnegie was a very poor man who started working as a bobbin boy for less then $1. 20 a day and he ended up being one of the richest men. He knew what it was like to work and earn so little that when he became rich and had money to blow he gave up a large potion of his fortunes to cultural, educational, as well as scientific institutions for the improvement of humanity. In conclusion, these eight men should be classified as captains of industry because of the given information. These men are all important parts of our history and most of these eight men were a very positive influence on industry itself and what we decide to do nowadays. These are very important figures of the industry because they gave us the ideas that we use today to consider what is acceptable for industry and how we pay or treat individuals working today. Without these men, then the United States would have a completely different outlook on how industry is ran and why we do things the way that we do.

I need a review of the movie Go Tell The Spartans

I need a of the Go Tell The Spartans - Movie Review Example The men are inexperienced and have no real sense of what the war will entail. They are badly outnumbered by Viet Cong troops and there are reports of fighting in the area. Their commander is named Barker, and he is the heart and soul of the film. Barker has fought in many wars and is world-weary and wise. He knows his men are foolish and outnumbered. He does everything he can to teach them to prepare themselves for battle. But the men at Muc Wa are just one cog in a larger wheel. We see how the bureaucracy of the American armed forces slows things down and prevents soldiers from showing initiative. Even after numerous complaints, Barker is still undermanned. In a sense, he is only awaiting his own death. In order the fully understand this excellent film, it is important to understand America's role in Vietnam during the period. Unlike the Second World War, where the purpose of the U.S. was clear, and its vital interests at stake, the Vietnam War had an unclear objective. Americans ha d trouble understanding why it was in their national interest to send hundreds of thousands of soldiers to this far-away land. Some of the actions taken by their own soldiers ashamed them, and the losses of life were enormous. Many aspects of the war in retrospect seem surreal.