Factors Determining Levels of Investments in Developed Economy (Essay Sample)

Factors Determining Levels of Investments in Developed Economy
In its simplest form, investment is the expenditure on capital goods such as machinery, new technology, offices, and land by governments, private and public institutions, and individuals. Investments can also refer to quantifiable investments in human capital such as training, seminars, and education with an aim of creating a better workforce that would in turn leads to greater output. In economic terms, investment is the sacrifice of the current consumption for a potentially higher return in the future. In the modern economy, this sacrifice is influenced by four main factors: interest rates, business confidence and expectations, economic growth, and technological developments.
Investors often obtain their funding from current savings or borrowing through bank loans, paper contracts, notes, and mezzanines, and therefore, interest rates play a major role in access to capital and consequently level of investments (Sajedi & Thwaites, 2016). The lower the interest rate, the lower the cost of credit and hence, the higher the rate of investment and vice versa. Moreover, since investments involve risks, businesses will only invest if they are confident about future demand costs and economic prospects. This confidence is, by a larger extent, influenced by the economic growth of a country as stated by the accelerator theory. Furthermore, with the advent of technology, investment in any modern economy is heavily influenced by its ability to innovate and adopt new technological developments to improve efficiency and reduce the cost of production.
Inconclusion, investments are one of the key pillars of economic growth in any state. However, unlike in the ancient days where the level investments were largely influenced by the forces of demand and supply, in the modern economies, the level of investments is influenced by many other factors such as new technologies, interest rates, and investors' confidence. Although the level of investments can be determined by many other factors such as inflation, government policy, and wage costs, studies have singled out the four factors discussed are the main influencers of investments in modern economies.