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Q-Theory of investment

Q-Theory of investment

Nobel laureate economist James Tobin has proposed the q theory of investment which links a firm’s investment decisions to fluctuations in the stock market. When a firm finances its capital for investment by issuing shares in the stock market, its share prices reflect the investment decisions of the firm.

The Solow Growth Model

The Solow Growth Model

The Solow model is an exogenous growth model, an economic model of long-run economic growth set within the framework of neoclassical economics. It attempts to explain long-run economic growth by looking at capital accumulation, labor or population growth, and increases in productivity, commonly referred to as technological progress. At its core is a neoclassical aggregate production function, usually of a Cobb–Douglas type, which enables the model “to make contact with microeconomics”.

The Accelerator Model

The Accelerator Model

The accelerator suggests a positive relationship between investment and the growth of demand. Accelerator theories assume that for a business there is a desired capital stock for a given level of output and interest rates. A rise in output or a fall in demand may prompt increased levels of investment as firms adjust to reach the new optimal capital stock level.

Section 2 Theories of investment

 

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