Types of Investment

1
Types of Investment

• Business fixed investmentbusinesses spending
  on equipment and structures for use in production
• Residential investmentpurchases of new housing
  units (either by occupants or landlords)
• Inventory investmentthe value of the change in
  inventories of finished goods, materials and
  supplies, and work in progress.

2
slide 1
3
Evidence for the Accelerator Model
Inventory investment
100
(billions of 1996
dollars)
80
1998
1984
1997
60
2000
1999
40
1977
1974
1971
20
1991
1993
0
1983
1982
-20
1975
1980
-40
-200
-100
300
400
500
200
100
0
Change in real GDP (billions of 1996 dollars)
4
CASE STUDY Bank failures in the 1930s

• From 1929 to 1933,
• Over 9000 banks closed.
• Money supply fell 28.

This drop in the money supply may have caused the
Great Depression.
It certainly contributed to the Depressions
severity.
5
Table 18-1 The Money Supply and its
Determinants 1929 and 1933
6
Table 18-1 The Money Supply and its
Determinants 1929 and 1933
rr rose because banks became more cautious,
increased excess reserves
7
Table 18-1 The Money Supply and its
Determinants 1929 and 1933
The rise in cr and rr reduced the money
multiplier.