Key Factors that Determine the Level of Investment in Modern Economy (Essay Sample)

Identify the key factors that determine the level of investment in a modern economy.
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Investment is the utility of assets such as machines and new technology to earn income. Investment is not only vital in influencing capital stock but the economy cannot thrive without investment, as it is a component of aggregate demand. But the question remains what influences the level of investments in the current economy? As discussed below:
First, the interest rate is a factor affecting investments as investments are financed through current savings or loans. Therefore, if the interest rates are high then firms would avoid the loans. Henceforth the interest rate on investment should be greater than the interest value to gain profit from the invested money. On the contrary, if the interest rate is cut the investment would be an ideal option.
Moreover, another key factor is growth, studies show that investments are directly proportional to economic growth. In that, as the economy grows so as the investment. The accelerator theory by (Kumar, 2015) argues that the rate of investments depends on economic growth. Therefore as the demand for the product increases so as the level of investment.
Furthermore, government policies influence the level of investment. For instance, if the government sets rules that discourage one firm from an investment like high taxes on goods. In contrast, the government can promote investment through subsidies offered to firm's hence encouraging investment of both local and foreign firms.
Also, the confidence of the firms in the future costs the demand for the product, and the economy at large hinders investment. As Keynes suggests that the "animal spirit" of an investor is an influence on the level of investment conducted. Due to uncertainty, rational decisions need to be made. (Sakai, 2019).  Hence the confidence is influenced by the economic development of the country henceforth investment.
Lastly, the production of capital in terms of technology. For instance