Factors influencing the demand and supply of investments. Investment demand Keynesian concept of investment demand

The concept of investment demand is associated with the demand for those goods that will bring profit in the future. Like ordinary consumer demand, investment demand is associated with several factors at once, and it is useful for any investor to know each of them. The greater the need for a particular product, the higher its price will be.

Concept and types of investment demand

This concept is one of the most important at all levels of the economy - both within an individual company and across the industry and the state as a whole. Investment demand represents the entrepreneur's need to purchase investment goods that will bring profit in the future. Such acquisitions include:

• real estate (commercial, industrial premises, land);
• general and special purpose vehicles;
• production equipment and mechanisms;
• company services (for example, transport, construction, repair).

Investment demand is always expressed in a specific amount of money that an entrepreneur is willing to allocate for the purchase of these goods. This value may fluctuate significantly depending on changing market conditions. For example, an increase in prices for purchasing materials or an increase in the cost of loans force an investor to save money and look for additional sources of financing.

An increase in consumer prices, maintaining the same tax rates for the next 5-6 years, and obtaining a preferential loan, on the contrary, increase investment activity. Therefore, it can be argued that investment demand is a variable function that depends on several factors influencing a particular company. At the same time, it is important to understand that the economy is interested in specific opportunities, and not in the desires or plans of the investor. In this regard, it is customary to highlight:

1. Potential investment demand, which can be defined as planned expenses for the purchase of investment goods. Theoretically, every company has “extra” resources that it can, but is not obligated to, use to develop its own business. This amount of assets is defined as a potential investment opportunity.
2. Real investment demand is associated with the funds that the investor has firmly decided to invest in the development of the company. Therefore, real intentions must be distinguished from potential.

Demand factors

Investment demand, along with supply, is one of the most important factors in determining prices in the market for relevant resources (real estate, equipment and other investment goods). Since in general the price is determined by the consensus between supply and demand, which is graphically expressed by the intersection of these curves, it can be argued that the need to purchase these goods always expresses their price.

In turn, the need to acquire resources is also influenced by certain factors that are related to the state of the economy at the state level (macroeconomics), industry, specific region and the financial situation of the company itself. Conventionally, these factors can be combined into 2 groups.

Basic

First of all, the desire and real opportunity to acquire new resources is determined by the expected profit from them. It is the receipt of income that encourages the investor to risk his own or borrowed funds in order to develop his project. Potential profitability is determined based on calculations based on existing experience.

For example, an investor invested in a bakery producing baked goods. It is known that 100 units of products are sold per day, and the demand is quite high, since all goods are sold out by 15:00. Accordingly, it makes sense to increase production volumes. This can be done by expanding the area and purchasing additional equipment.

From this example it is clear that the expected profit is actually guaranteed. But in practice, the benefits may not be so obvious. In such cases, investors prefer either not to risk at all, or to invest a small amount, which theoretically can be lost without damage to the main enterprise. If the experiment is positive, new funds are invested.

Minor

If the expected profit is the main motivating factor for the investor, then along with it he should pay attention to other factors. Even though they are additional, their importance cannot be underestimated:

1. First of all, pay attention to the real interest rate that has developed in the borrowed funds market. If investments include credit money, then it is important for the entrepreneur to understand how profitable the investment will be.
2. Real inflation is also taken into account. This factor is more difficult to calculate because it is influenced by many unpredictable events, including exchange rate differences. Therefore, they strive to make an investment in such a way that it can be repaid in the foreseeable future (no more than 5 years).
3. The tax regime is very important. These are tax rates, as well as specific types of taxes, possible government reforms. If the state undertakes to maintain taxes at the current level, it is much easier for an entrepreneur to calculate the consequences of making a particular decision.
4. State policy in the economic sphere, business regulation, and social sphere also has a noticeable impact. For example, if it is known that a low-cost housing project is planned, this will significantly increase the demand for related resources.
5. Macroeconomic indicators - the unemployment rate, exchange rates, trade balance and many others - have both an indirect and specific impact. If an investor purchases goods abroad, it is extremely important for him to be confident that the domestic currency exchange rate will be relatively stable in the near future.
6. Finally, the prices of investment resources themselves determine the need for them. If the equipment for the production of some products is currently too expensive, the investor can switch to other, more profitable projects.

Sources of formation

Essentially, investment demand is related to the company's need to make investments. Quantitatively, this need is expressed in the amount of funds that the company is ready to provide for the purchase of real estate, land, production equipment, payment for certain services of other companies, etc. The means can be:

• own (previously received profit, savings, proceeds from the sale of property);
• borrowed (loans from banks, the state or private individuals).

Since investing is always associated with some kind of risk, it is preferable to use the company’s own funds, which theoretically can be lost in whole or in part without threatening the existence of the business itself. However, in some cases it is necessary to attract borrowed capital - loans from a bank or other sources. In such situations, the investor must carefully calculate all potential threats, making a decision based on the rules of risk management.

Keynesian concept of investment demand

The famous English economist John Keynes (1883 - 1946) proposed his theory of the formation of investment demand. He proceeded from the fact that, regardless of the specific conditions (interest rate in the bank, taxation level, purchase prices, other costs), the company is still forced to make certain investments. These investments allow it to maintain normal conditions (for example, the operability of capital equipment) or even increase production, developing the business.

Therefore, we can distinguish at least 2 categories of investments:

• autonomous - the company will make these investments in any case, since without them the existence of the business itself is jeopardized;
• induced (predetermined) are investments that strongly depend on the level of profit, so the investor can always “change his mind” and not risk the accumulated funds.

The economy is always interested only in autonomous investments that an investor will inevitably make when purchasing certain goods. Therefore, we can say that investment demand is determined primarily by autonomous investments. In this sense, such a classification almost completely corresponds to the division into potential and real demand, which was discussed above.

The amount of demand grows up to certain limits, after which the supply of corresponding goods adjusts to this indicator. As a result, a certain compromise (equilibrium) situation is achieved when the numerically expressed value of demand is compared with the value of supply. A price is formed, which is the average in a given market (real estate, equipment, services, etc.).

Investment demand is of great importance to the economy and is one of the most important indicators of its condition. If the need for investment resources is constantly increasing, this clearly indicates economic growth in individual industries or in the economy as a whole. Declining demand, on the contrary, indicates the presence of certain difficulties.

Investment demand characterized by a high degree of mobility and is formed under the influence of a whole complex of factors, among which macro- and microeconomic factors can be roughly distinguished.

On macroeconomic level, the factors determining investment demand are: national production volume, the amount of savings, monetary income of the population, the nature of the distribution of income received for consumption and savings, the expected rate of inflation, the interest rate, state tax policy, financial market conditions, the exchange rate of the monetary unit, the impact of foreign investors, changes in the economic and political situation, etc.

An increase in the volume of produced national product, other things being equal, leads to an increase in investment demand, and vice versa. The change in the amount of accumulation and monetary income of the population acts in the same direction. At the same time, it is not so much the absolute sizes of these indicators that are of decisive importance, but rather the relative ones: the ratio between accumulation and consumption within the framework of the national product used, the distribution of income received between savings and consumption.

Investment growth is achieved by increasing the share of savings in income received.

The expected inflation rate. An increase in inflation causes the income expected to be received from investments to depreciate. In addition, inflation has a negative impact on the volume of investment in a number of areas: through restraining the driving forces of economic growth in the long term, limiting the processes of accumulation and expansion of production, depreciation of production assets in all functional forms, inflationary taxation of profits, the transfer of funds from the production sector into the sphere of circulation, a decrease in real income and savings, a decrease in the capacity of the domestic market, etc. Therefore, the growth of inflation rates, as well as inflation expectations, impedes the intensification of investment activity.

Any company, creating (or updating) capital, does so in order to obtain certain benefits. The main goal of a company in most cases is to maximize profits. To achieve this goal, the company strives to use optimal combinations of various factors of production, including capital. The desire to make investments, i.e. create new capital occurs when invested funds allow you to compensate for initial costs and receive additional profit. The size of this profit can be expressed as a percentage of investment costs, which is called return on investment:

The return on investment may vary depending on the type of activity, the size of the company, or other factors. But there is a general pattern - As the volume of investment increases, the profitability decreases. In Fig. Figure 1.1 shows a typical curve of the dependence of the return on investment of an individual company on its volume.

Rice. 1.1.

Any company may have a variety of investment opportunities, varying in terms of profitability. Based on the desire to maximize profits, the company implements the most profitable projects first; however, the opportunities for obtaining high incomes are limited, and as the volume of investment expands, less profitable projects are introduced.

The marginal efficiency curve of investments characterizes the firm's ability to obtain benefits from investment activities and determines its investment demand.

Regardless of what kind of funds - own or borrowed - the company uses, the costs here are the price that must be paid in the market for the use of borrowed funds - market interest rate. If an enterprise uses borrowed funds, the interest takes the form of direct costs - fees for the use of funds. If own funds are involved, the interest rate is an opportunity cost - lost profit from the fact that investment resources are not made available for use by other market participants.

The firm's decision on the volume of investment is thus determined, on the one hand, by the profitability of its own investment programs, and on the other, by the market interest rate, i.e. price for using borrowed funds. Figure 1.2 illustrates the following relationship: the firm will increase its investment until its return equals the market interest rate.

Rice. 1.2.

Thus, The interest rate is a criterion for the effectiveness of investment. The efficiency of the investment project should not fall below the loan interest rate.

The next factor influencing investment demand is investment costs. This factor is taken into account when calculating the rate of expected net profit for each investment project. An increase in costs causes a decrease in the rate of expected net profit, and vice versa. At the same time, since a significant share of investments is long-term in nature, the time factor. As a rule, the greater the cost of investment and the payback period, the lower the level of investment demand.

The volume of investment is also affected entrepreneurs' expectations based on forecasts of future demand, sales volume, profitability. The return on investment will depend on the increase in these indicators, so growing optimistic expectations lead to an increase in investment demand.

The greatest return is associated with investments in innovation activities that reduce production costs, improve product quality and the expected net profit rate. Therefore, changes in technology are a factor stimulating investment demand.

Investment demand is the demand in the economy for investment goods: machinery, equipment, building materials, services of construction companies. It arises from the intention or plans of firms to increase their physical capital (fixed assets) as well as inventory. Investment demand is part of aggregate demand in the economy along with consumer demand. Its value depends, other things being equal, on the level of real interest rates: the higher they are, the lower the investment demand, and vice versa.

A distinction is made between potential and actual investment demand. Potential investment demand reflects the amount of income accumulated by economic entities, which can be used for investment and constitutes potential investment capital. Real investment demand characterizes the actual need of economic entities for investment and represents investment resources that are directly intended for investment purposes - planned or intentional investments.

Investment demand is formed under the influence of heterogeneous and multidirectional factors that determine its flexibility and dynamism.

Factors influencing the volume of investment.

1. Distribution of income received between consumption and savings (accumulation) - the more society eats today, the less it saves, and therefore, the lower the level of investment. In conditions of low income, most of it is spent on consumption. An increase in income causes an increase in the share of savings, which serve as a source of investment resources, and hence an increase in the volume of investments.

2 Level of return on investment -- profit is the main incentive for investment. Even virtually risk-free investments (for example, investments in government securities) must have some minimum rate of return below which savers will not be willing to invest; The higher the risk of an investment, the higher the expected return on investment should be. Therefore, the higher the expected rate of net profit (that is, profit per 1 ruble of investment), the higher the volume of investment will be, and vice versa.

3 Loan interest rate - in the investment process, not only own but also borrowed capital is used. If the expected rate of net profit exceeds the loan interest rate, then, other things being equal, the investment will be effective, and vice versa. Therefore, an increase in the interest rate causes a decrease in investment, and vice versa.

4 Expected inflation rate - the expected inflation rate has a significant impact on investment demand. In the most general sense, an increase in the rate of inflation causes the income expected to be received from investments to depreciate. In addition, inflation has a negative impact on the volume of investment in a number of areas: through restraining the driving forces of economic growth in the long term, limiting the processes of accumulation and expansion of production, depreciation of production assets in all functional forms, inflationary taxation of profits, the transfer of funds from the production sector into the sphere of circulation, a decrease in real income and savings, a decrease in the capacity of the domestic market, etc. Therefore, the growth of inflation rates, as well as inflation expectations, impedes the intensification of investment activity.

5 The volume of national product produced is an important macroeconomic indicator that affects investment demand. Its increase, other things being equal, leads to an increase in investment demand and vice versa. The change in the amount of accumulation and monetary income of the population acts in the same direction. At the same time, it is not so much the absolute sizes of these indicators that are of decisive importance, but rather the relative ones: the ratio between accumulation and consumption within the framework of the national product used, the distribution of income received between savings and consumption. Savings, which in a market economy refers to the part of income not used for consumption, are a source of investment resources. The amount of real resources for savings that an economy has at each specific stage of its development depends decisively on what priorities underlie the distribution of the produced product - current consumption or accumulation.

6 The degree of organization of the financial market - a considerable part of investment resources is formed from the savings of the population, which is practically deprived of the opportunity to directly invest in production. His participation in investing is mainly carried out through the financial market. If the financial market is well organized, then even funds that are available for a short period of time are also involved in the investment process.

7 Interest and tax policy of the state - interest and tax policy of the state has a significant impact on the dynamics of investments. Regulation of interest and tax rates is an important lever of government influence on investment demand. A reduction in income taxes, all other things being equal, leads to an increase in the share of enterprise savings allocated for investment.

8 Expectations of entrepreneurs based on forecasts of future demand, sales volume, profitability. The return on investment will depend on the increase in these indicators, so growing optimistic expectations lead to an increase in investment demand.

Other factors also have a certain influence on the volume of investments (for example, the level of liquidity of investments, the degree of uncertainty and risk, etc.)

Rice. 3

DI - investment demand

Investment demand increases if the rate of return on funds invested in investments is higher than the percentage of the investment of this amount of money in the bank. Investment demand falls if interest rates on loans increase and capital investment becomes less profitable. Investment demand slows when bank interest rates rise and securities prices fall. In this case, capital resources from the sale of shares and bonds are reduced.

As a result, we can conclude that when using any source of financing, investments will be profitable as long as the interest rate does not exceed the expected rate of return on the funds invested in the investment, i.e., the demand for investment is inversely proportional to the bank interest rate.

The investment proposal is a set of investment objects in all its forms: newly created and reconstructed fixed assets, working capital, securities, scientific and technical products, property and intellectual rights, etc.

The formation of an investment proposal has a number of distinctive features. It is determined by such basic factors as price, as well as non-price components: costs, technology improvements, tax policy, expectations, level of competition, etc.

The rate of return underlies the price of financial instruments that mediate the movement of real capital. The market price of financial assets indicates the degree of attractiveness of investments in investment goods.

The interest rate on deposits in the banking system, the value of which determines household savings, has a significant impact on the investment supply. The development of the stock market and loan capital market is therefore an important condition for stimulating investment supply.

Since, with a certain composition of the investment supply, investment demand is focused on more profitable assets, the volume and structure of the investment supply affects the volume and structure of investment demand. Investment supply is the main factor determining the scale of functioning of the investment market, since it causes a change in demand for investment goods. The feedback mechanism is not so pronounced; it manifests itself only in a free competitive market. Balance of investment demand and supply can only be achieved on the overall scale of the investment market. Their equalization occurs in the market system through the establishment of equilibrium prices. The operation of the equilibrium price mechanism is inherent only in a free competitive market.

This mechanism involves changing prices for investment goods and capital based on balancing supply and demand until a dynamic equilibrium is established in the investment market, i.e. equilibrium prices for investment capital and investment goods and synchronization of decisions on their purchase and sale will not be achieved.

Investments long-term investments of public or private capital in various sectors of the economy both within the country and abroad. In macroeconomics, investment refers to the real investment of capital in the production of any product. Real investment are divided into production (buildings, equipment), investments in inventories (raw materials, materials) and investments in housing construction.

If we exclude investments used to replace consumed capital, then the remaining net investments can be either autonomous or induced.

Investments are called induced , if the reason for their implementation is a sustainable increase in demand for goods.

To determine the volume of investment that ensures the necessary expansion of the production base, it is necessary to know the incremental capital intensity of products (X). This indicator allows you to determine how many units of additional capital are required to produce an additional unit of output. In order to increase production with a given incremental capital intensity y t 1 before y t induced investments are required in the amount of: I in = χ (y t y t 1 ).

Thus, induced investment is a function of the increase in national income. The incremental capital intensity ratio is also called accelerator.

If in the current year the national income decreases compared to the previous year ( y t< y t 1 ), then induced investments take a negative value. In practice, this means that due to a reduction in production, entrepreneurs do not partially or completely restore their worn-out capital. It follows that the volume of negative investments cannot exceed the amount of depreciation .

Forecasting is the core of any trading system, and if done well, it can make you extremely rich.

Investments, the implementation of which is not a consequence of the growth of national income, are called autonomous. The reasons for the emergence of autonomous investments are external factors, such as: abruptness of technological progress, changing tastes, population growth, expansion of foreign markets. The source of financing is government spending, external loans.

Investment Features are as follows:

Firstly, they provide economic growth;

Secondly, investment is the most volatile part of aggregate demand.

The specificity of the impact of investments on the economic situation is that at the time of their implementation, the demand for goods increases, and the supply of goods will increase only after some time (when new production capacities come into operation).

Keynesian concept of investment demand suggests that when investing in an investment project, an entrepreneur must take into account the potential interest on the invested funds and the degree of risk. J.M. Keynes suggests estimating the income stream from an investment project using discounting.

Discount rateR represents a measure of preference by an economic entity for the present value of the future. Each individual has his own discount rate. If the discount rate of a certain entity is less than the interest rate paid on the bonds, then this entity purchases the bonds and vice versa.

Let some investment project require investments K 0 in the current period and promises to give in the next three periods, respectively P 1, P 2, P 3 net income. Then the investor will consider this project economically feasible if

K 0< П 1 /(1 + R) + П 2 / (1 + R) 2 +П 3 /(1+ R) 3 .

For given P i the value of the sum of their discounted values ​​depends on the value R. Meaning R, which turns this inequality into equality is called marginal efficiency of capital ( R*). Investment demand associated with the selection of investment projects based on profitability criteria. An investment project will generate maximum income if R * is the largest.

In addition to the profitability of investment options, the investor must consider degree of risk each of them. Investment demand will be higher, the lower the current interest rate. Investment demand can be represented by the formula:

I a =I i (R * i), Where I i marginal propensity to invest.

Marginal propensity to invest shows how many units the investment will increase if the interest rate decreases by one point .

Neoclassical concept of investment demand , proceeds from the fact that entrepreneurs resort to investing in order to bring the amount of capital they have to the optimal size. The dependence of the volume of investment on the size of operating capital can be represented by the formula:

I a t = β (K * K t); 0< β <1; Where I a t volume of autonomous investments during the period t ; Kt amount of capital existing at the beginning of the period t ; K* optimal amount of capital;

β coefficient characterizing the degree of approximation of the existing volume of capital to the optimal one for the period t.

The optimal amount of capital is the one that, with existing technology, ensures maximum profit.

Let us assume that an entrepreneur who has decided to expand production plans to present investment demand for capital goods in the corresponding factor markets. But first he must determine the sources of financing for his future investments. There may be several such sources.

Firstly, this is the saved part of the profit, which will turn into investment demand only if the expected rate of profit, as noted, is higher than the interest rate. It follows that the higher the percentage, the lower the propensity to invest, the smaller the size of capital investments.

Secondly, an entrepreneur can count on receiving a loan from a commercial bank. In this case, his desire to invest and bank interest have a direct connection: the higher the interest, the more expensive the loan and the less profitable the investment project becomes. So, the higher the interest rate, the lower the flow of loans and the lower the volume of investment demand.

Thirdly, you can count on founder's profit by issuing and selling securities, and primarily shares, on the stock exchange. Wanting to attract financial resources from outside, an entrepreneur appears on the securities market. However, he needs such an amount of monetary capital that would be enough to implement the investment project. This is only possible if the share price of his company is high enough. But the price (rate) of shares is also directly dependent on the interest rate:

In other words, the higher the percentage, the lower the founder's profit that members of the joint-stock company can count on. This is understandable, since with a high interest rate, savings owners are much more willing to take their money to the bank rather than to the stock exchange. Hence, the higher the percentage, the lower the stock price, and vice versa.

Thus, for any options for financing capital investments, their value decreases as the interest rate increases, and vice versa. Investment demand curves are shown in Fig. 27.1.

Rice. 27.1.

In Fig. 27.1 it is clear that investment demand value - it is a function of the interest rate. But, as is known, other factors also influence the level of investment. For example, an increase in the income of households and firms, other things being equal, will lead to an increase in demand for investment goods, which is graphically shown by the shift of the 1 X curve to the right to position 1 2. This same shift illustrates the result of many factors favorable to the investment process. The opposite situation will be reflected by curve 1 3.

Investment demand is only one of the components of the macroeconomic equilibrium of commodity markets. Another component is the supply of savings, through which investments are financed. Without a sufficient amount of savings in the national economy, it is hardly possible to meet the required volume of investment demand. But saving is a function of income, and the higher the income, the higher the level of people’s propensity to save and the greater the amount of savings (Fig. 27.2).

The amount of savings depends not only on your income level, but also on other factors. In particular, if households receive information about rising interest rates and falling prices for financial assets, macroeconomic stabilization is achieved, then their propensity to save increases, which reflects a shift in the S x curve to position S 2 (see Fig. 27.2). The opposite situation is illustrated by the S 3 curve.

Rice. 27.2.

An increase in investment leads to a multiplied increase in income by an amount greater than the increase in investment itself. This GDP growth occurs as a result multiplier effect.Cartoonist- this is a numerical coefficient showing how many times income will increase for a given increase in investment; this is the number by which the change in investment should be multiplied in order to calculate the change in GDP.

Let's consider the mechanism of income multiplication. Let’s assume that a subject uses 10 thousand rubles to finance an investment project, for example, to build a garage. your savings. How will the increased, or multiplicative, “power” of rubles financing investments manifest itself? Let's analyze this in order, assuming that all the money was used to pay wages to the owners of human capital.

The garage builders receive 10 thousand rubles from the investor and, having a marginal propensity to consume equal to, for example, 2/3 (MRS = 2/3), will spend 6666.7 rubles on new consumer goods. But these new goods need to be produced for these new buyers, that is, production must be increased in the relevant industries. Manufacturers of these goods now receive 6,666.7 rubles from new buyers. additional income. If these producers also have a marginal propensity to consume equal to 2/3, then they, in turn, will spend 4444.4 rubles on consumer goods and services, or 2/3 of 6666.7 rubles. (or 2/3 from 2/3 10,000 rub.). So the process will continue with each new round of expenses equal to 2/3 of the previous circle.

Thus, financing investments in the amount of 10,000 rubles. triggered an endless chain of secondary consumer spending, which in turn increased the production of consumer goods and services and the growth of total income. But how much has GDP grown and how to calculate this increase? Using our example, let's create the following table.

This shows that with MPC = 2/3, the multiplier (M) is equal to 3. In our case, it is formed from one unit of primary investment and two units of secondary consumer spending. In other words, GDP increased by 30,000 rubles contains the final market price of the constructed garage (10,000 rubles) and the sum of the prices of final consumer goods (20,000 rubles).

Thus, the general formula for calculating the multiplier with a known marginal propensity to consume is as follows:

It follows from the formula that the value of M depends on the parameters of the MRS. But this same value can also be expressed through MPS (marginal propensity to save), since MPS =

= (1 - MRS). Means,

Now we can write down the formula for calculating the dynamics of GDP:

The following conclusions follow from this formula:

• 1) the increase in GDP directly depends on the dynamics of investment;
• 2) the higher the level of additional consumer spending, the greater M and, accordingly, GDP; conversely, the greater the additional savings in each round of spending, the less M and the less GDP;
• 3) an increase in GDP is the result of the interaction of a high level of consumption and a high level of investment.

This is the explanation for the so-called “The paradox of thrift”, i.e. you need to save no more than the business is ready to invest. Saving, if it is greater than the equilibrium optimum, reduces current consumption and ultimately leads not to growth, but to a reduction in GDP.

Now, having the functions of investment and savings, we can begin to study the macroeconomic equilibrium in the goods market.