10/31/2023 0 Comments Macro vs micro investingKennedy introduced an investment tax credit to stimulate investment. In 1954, accelerated depreciation was introduced, allowing investors to deduct a larger fraction of the purchase price of a machine than had previously been allowed. This countercyclical investment policy follows significant precedent. This tax “subsidy” to the purchases of machines was meant to stimulate investment at precisely the time that it would otherwise have plummeted. government introduced a measure that significantly increased the tax benefits to firms that purchased new machines. During the recession of 2001, for example, the U.S. What Makes Investment Go Up and Down?ĭespite this, Jorgenson’s theory has been a key determinant of economic policy. If it is financed by foreign saving, then future returns go abroad, and the country is less wealthy than otherwise. If it is financed by domestic saving, then future returns stay at home. Accordingly, the source of investment finance is an important concern. Over time, then, a country that relies exclusively on foreign financing of investment may find that it has very little capital income with which to finance future consumption. However, when investment is funded from outside, some of the future returns to capital are passed outside as well. More recently, the United States has repeatedly posted significant investment growth and very low savings. The industrial base of the United States in the nineteenth century-railroads, factories, and so on-was built on foreign finance, especially from Britain. This method of financing investment has been very important in the United States. In an open economy, however, investment can surge at the same time that a nation’s saving is low because a country can borrow the resources necessary to invest from neighboring countries. In an economy that is closed to the outside world, investment can come only from the forgone consumption-the saving-of private individuals, private firms, or government.
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