Important determinants of investment include the entrepreneurial skills of the firms investing and the risk appetitive of the investors along with the socio political condition in the country. The figure 1 depicting the GDP and the percentage investment in the UK for the period of 1993 to 2003 clearly provides that the increased level of investment does not entirely derive GDP growth. The trend of the growth in terms of its fluctuation in the ten year period is based on the increase and the reduction of the investment in the region but the multiplier effect is not visible. Moreover towards the end of the ten year period, in 2000 Q4 and 2003 Q3 the investment increased but the growth did not respond accordingly. This is due to the other determinants of growth in theUKwhich were much stronger than the investment.
It is popularly believed that consumption is determined mainly by current income. This assumption is based on the western economies and their dynamics. In reality the consumption is dependent on a number of factors aside from the current income which include the wealth, the taxes payable, the increasing prices in the market, the attitude of the people in the market towards consumerism, the share prices as well as the interest rates in the region. Higher interest rates can decrease consumption in the region, as people would want to save and earn profit on their investments through the high level of interests. The figures 2 & 3 depict the investment and the savings percentages forUKfor the 10 year period. The trends depict that the savings on the economy were largely dependent on the interest rates.
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