Page 91 - DECO402_Macro Economics

Macroeconomic Theory

Notes of presented investment. The mean of social profit is the total satisfaction by the whole society, which
are not fully presented in receipts by entrepreneur. For example the housing facility of government is
more by the social profit, receipts by the teachers of university. Like that, social cost by society from
air, water and sound pollution is not ignorable at the time of evaluate real cost of public investment
because of the public field entrepreneurs. Public investment is inspired by the social welfare, but
self investment inspires by profit on purchasing the capital goods like instrument, plant, industries,
offices, store and shop. Entrepreneurs are invested whenever they expected a satisfied return by the
projects. Marginal efficiency of capital is decided to meet the required income and its purchase price
by the capital property. Investment is profitable whenever the marginal efficiency of capital is more
than the investment rate of market. Now we explain that how it is happen.

Self Assessment

Fill in the blanks:
1. The mean of investment is that part of collective production, which can become the form of
new……………………….
2. New investment symptoms is…………………….

10.2 Marginal Efficiency of Capital

According to Keynes, the investment in new project is depending on the marginal efficiency of capital
and interest rate of market. And the marginal efficiency of capital is decide by the anticipated receipts
or profit from the capital property and fulfillment value of capital property.

Supply Price of Capital Asset

When entrepreneurs want to purchase a capital property, then he will pay for those. Its price is says
the purchase price of capital thing. Keynes says the establishment cost or supply price of capital
property to the cost of property acquisition. It is that price on which new capital property are establish
or available. It is possible that the spread-over of total supply of property is spread many years,
especially in construction related services. Resultantly, total cost of entrepreneurs is separate from
required price. But, that situation is not considered for make simple to present analysis. Besides that,
the disposal value of property considers zero.

Prospective Yields from Capital Assets

Prospective yields from capital asset or Expected wealth from income stream is the difference between
the sale from production and variable cost during the lifetime. Variable or prevailing cost is the
expenditures on raw materials, labours, advertisement, keep and travel.
Every entrepreneur whose decide to purchase new instrument and construct new industry, firstly
think about the prospective receipts of assets. Whole capital properties are continuing to long time
period and their receipts are spread many years in future. What will be in future, its prediction is
more important. The uncertainty in returns of future is because of the uncertainty in goods price
and productivity of capital property. If the physical life of property is known, then it is thought to
know their economic life because of the possibility of technical changes. Resultantly, before depletion
physically the thing is old or obsolete. So, entrepreneur measures carefully its life and income flow
in the life duration of capital property.

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