Investment and their role in macroeconomics

The main role in determining the level of national production and employment in macroeconomics is given to investments, designed to absorb the ever-expanding volume of savings.

Investments are the expenses of entrepreneurs aimed at expanding production and improving product quality. Enterprises, as a rule, invest in the following areas:

• •    construction of new industrial buildings and facilities;

• •    procurement of new equipment, equipment and technology;

• •    additional purchases of raw materials, materials and other items of labor;

• •    construction of housing and a number of construction objects, etc.

The role of investment in macroeconomics is ambiguous.

First, they are the most important element of total expenditure, and therefore their fluctuations significantly affect aggregate demand. So, small investments, for example, in the services sector affect low employment in this area, its insignificant share in the total mass of final goods and services.

Secondly, investments lead to the accumulation of funds of enterprises, which creates the basis for economic growth in the future.

Thirdly, the irrational use of investment leads to the freezing of productive resources and, consequently, to a reduction in the volume of national production. Thus, construction in progress in our economy is one of the causes of the deadening of material resources, the reduction of production efficiency.

Sources of investment are either own funds of enterprises (profit, depreciation), or borrowed funds (credit, leasing, seleng, etc.). Investments should be expected until the real interest rate is equal to the expected rate of net profit. Between the growth of investment and the increase in the volume of national production (income) there is a certain stable ratio. It is based on the fact that each expenditure on investment is converted into primary, then secondary, etc. revenues. This was called the multiplier effect. The multiplier itself is a numerical coefficient that shows the size of the growth of national production (GNP) with an increase in investment. The magnitude of the multiplier (M) is equal to

M =

MPS

1 - MPC

where MPC is the marginal propensity to consume; MRS - marginal propensity to save. How does the multiplier effect?

Example. A company produces additional products and for this purpose attracts additional workers, paying them 60 thousand rubles each. per month, i.e. our investments are, say, equal to 60 thousand rubles. Let the data of workers and in the society Mrsravna 2/3, and 1/3 of their income goes to savings. What do we get? When MPC = 2/3, the value of M = 3, i.e. M = and additional GNP will be: GNP = DI M = 60 · 3 = 180 thousand rubles.

Thus, the greater the additional expenditures of the population on consumption, the greater will be the magnitude of the multiplier, and, consequently, the increment of GNP at a given volume of increment of investment. The greater the amount of additional savings of the population, the smaller the magnitude of the multiplier, and hence the increase in GNP for a given volume of investment increment. Because of the multiplier effect on national production, it is investments that are considered in macroeconomics as the most active element of aggregate demand, affecting the balance of the economy.

In conclusion, we should especially dwell on the so-called golden rule of accumulation. Since equilibrium economic growth is compatible with various savings rates, the problem arises of choosing its optimal rate (conditions for the formation of investments).

The optimal rate of accumulation, corresponding to the “golden rule” of E. Phelps, provides an equilibrium economic growth with a maximum level of consumption. At the level of capital-labor ratio, which corresponds to the “golden rule”, the condition must be fulfilled: the marginal product of capital is equal to the rate of disposal.

If the economy in its original state has a capital reserve larger than the “golden rule” follows, then a program to reduce the accumulation rate is necessary. This program causes an increase in consumption and a decrease in investment.

If the economy in its initial state has a stock of capital less than it follows by the “golden rule”, then a program is needed to increase the savings rate. This program initially leads to an increase in investment and a drop in consumption, but as capital accumulates from a certain point, consumption begins to grow again. As a result, an economic growth of a new quality is achieved in the economy, where consumption exceeds the initial level. This program is usually considered unpopular due to the presence of a transition period, so its adoption depends on the preferences of politicians, their focus on short-term or long-term results.

Innovation-type investments are investments in innovative sectors of the economy, contributing to the accelerated development of the national economy based on the more active use of intensive business methods.

As part of an investment of an innovation type, it is advisable to single out several groups corresponding to different areas of intensification (labor, fund- and material-saving) and regional, sectoral and structural specifics of the country's economy.

Intensification of production in this case is considered as the implementation of activities that result in cost savings of the totality of the resources used. Resource-saving direction of intensification is the implementation of measures that contribute to saving a particular resource, such as living labor.

Intensification, the most important factor of which is NTP, is a prerequisite and material and technical basis for increasing the socio-economic efficiency and accelerating the pace of development of the national economic complex of the country, as well as improving the competitiveness of domestic products. It is necessary to use a qualitatively new physical and human potential and the results of favorable economic conditions. The search for new, sustainable sources of economic development and the intensification of the process of intensification of production are required.