How to derive demand curve for investment? and Lord Green Minister of State for Trade and Investment

How to derive demand curve for investment?

Consider the investment decision of a bank who faces a tax t on rental
income and can purchase new capital at price q (per unit of consumption).

(a) Derive the demand curve for investment assuming that capital
purchased today can be used in production starting tomorrow.

(b) Show how changes in t and q alter the demand curve for investment.


Investment best answer:

Answer by Ingenious
a) there isn't really all that much to work with, but with any bog standard demand curve you will know that the curve will slope from top left to bottom right

technically we say interest rate r is on the vertical axis and investments I is on the horizontal axis. So when the rate is high, we make little investments or purchase minimal new capital. when rates are low, we make a lot of new investments.

I am not sure what is meant by the price to purchase new capital at 'q'. is that a rate or something? If so, replace r with 'q' and you should be ok with the answer

b) depending on whether tax is a lump sum or a going rate you will have different demand curves. if the tax is a lump sum, you will have 2 parallel demand curves with the gap between them amount = t. The lower demand curve represents disposable income or money that is left over from tax
On the other hand, if the tax is a rate, you have 2 demand curves with different slopes but starting from the same point on the vertical axis, but the gap widens as you get closer and closer to the horizontal axis. Again, the curve closer to the origin being the demand curve for disposable income.

Hope this helps

Investment

Lord Green Minister of State for Trade and Investment


Image by bisgovuk
Lord Green, Minister for Trade and Export, at the Export for Growth conference at London's Imax Theatre; earlier, the Prime Minister announced a business growth package to help Britain's small and medium sized enterprises (SMEs) create jobs, export to new markets, secure finance and cut red tape.

Measures include a £95 million investment from the Regional Growth Fund to benefit hundreds of small businesses. This funding will support those SMEs considering investing in new capital assets and is expected to create at least 4,000 jobs and unlock around £500 million of new investment.

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