Economic Issues

             The Distribution of Income.
             Generally speaking, the more equitable (even) the distribution of income, the higher the rate of overall spending, and vice versa for a more inequitable (uneven) distribution of income. Eg a person with a net income of $200 per week might have to spend it all on basic costs of living, whereas someone receiving a net income of $2000 per week might comfortably save half of that level of income.
             Income Levels and Consumption Preferences.
             The income levels of consumers are the most significant single determinant of how much consumers spend.
             The Marginal Propensity to Consume(MPC) i.e. the proportion of each dollar of income that is spent on consumer goods.
             The Marginal Propnsity to save (MPS) i.e. the proportion of each dollar of income that is saved.
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             Influences on Investment.
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             The cost of Capital Equipment.
             The cost, or relative cost of capital equipment is influenced by:.
             changes in interest rates A fall in interest rates would make it cheaper to borrow funds for the purchase of capital equipment. Interest rates also represent an opportunity cost for firms which own their own capital.
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             A change in government policies related to investment allowances and tax concessions on capital goods. E.g if gov allowed a business to claim higher rate of depreciation this would reduce tax liability & make it cheaper.
             Any change in the price or productivity of labour (labour being a substitute for capital in the production process) e.g. If the cost of labour increased while the cost of capital remained the same, then the relative cost of capital compared to labour would have decreased, making its use more attractive.
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             Business expectations.
             Any change in expected demand for their products. If entrepreneurs expected a future increase in demand, they would be more inclined to purchase new capital equipment to boost production and satisfy that demand.
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             Inflation leads to uncertainty about future prices and future costs of production and this is likely to lead to reduced investment in productive capital equipment.