Investment

Investment of a firm is depend on 2 factors I.e 1 is output and 2 is rental cost .There is positive relation between output and investment .Higher the output higher will be the investment and the relation between investment and rental cost is negative.
As the investing of a firm is dependent on rental cost ,rental cost is affected by many factors.Some of the factors are :
1. Rate of interest : higher will be the real interest rate , higher will be the rental cost thus finally investment of a firm will be low.It shows the negative relation between rental cost and rate of interest and always considered real interest rate rather than nominal interest rate.
2. Depreciation : Higher will be the depreciation ,it will increase the cost Because of increase in tear and wear and finally leads to low investing by firms.
3. Taxes : Higher will be the  tax credit ,lower will be the rental cost because tax credit will be provided to the firms by the government which convince the firms to take initiative of increasing investment because from this rental cost will be reduce.
4.Price of shares: Higher will be the price of share ,firm will invest more by selling only few of its shares .Thus booming market leads to increase in investment.

Investment of a firm in inventory is also affected by whether the inventory is anticipated or unanticipated ,higher anticipated inventory investment leads to invest more and increase the aggregate demand but unanticipated investment leads to reduce the investment and finally to the aggregate demand
Thus increase in investment of firm increase the AD (aggregate demand) and also leads to the growth and development of economy.

Click here for government certification in Accounting, Banking & Finance