The investment demand schedule Essay Example | Topics and Well Written Essays - 1000 words

The investment demand schedule - Essay Example (Finpipe n.d.) The economic crisis has played a great role on interest rates needed to make an investment demand schedule. This study will review the factors that affect investment demand schedules of financing. 1. Supply and demand of money. What happened during the boom time before the crisis? Before the economic crisis, banks had enough supply of money and people demands for business expansion, housing, cars and credit. Banks gets their funds from depositors who are paid 6% interest rate on their savings, and banks lend this money to borrowers at 8%. When demand for money gets bigger than the sufficient funds of the bank, interest rates become higher. Why, because the bank will also borrow funds from other sources which charges them interest. This will necessarily increase the rate of interest in borrowing. 2. Monetary policies. The monetary policies of the government could either tighten or loosen the money supply. Loosening money supply is the policy of printing money for circulation by the Central Bank. Tightening it causes interest rate to increase. Monetary policies are decisions done by the government to manage the economy in such a way that it tries to determine how much money supply is needed. 3. Inflation. Inflation is defined as â€Å"an increase in the amount of money and credit in relation to the supply of goods and services† (YourDictionary) T control inflation, government issues several policies to curb inflation. One of these is printing of money for money supply. 3.1 The government monetary policy of printing money for supply circulation is called monetary inflation. In global economy today, the amount of money in circulation can be provided by financial institutions and can be more complex because of interest rates. (Your Dictionary) 3.2 Effect of Government borrowings. An investment demand schedule is needed by the government for public expenditures. When the tax collected is not sufficient for projected expenses,