The Investment Model

A Deeper Understanding of How Firms Make Their Investment Decisions

Investment is a key driving force for economic growth. This important worksheet first clarifies which type of investment we are going to be studying, and then mathematically breaks down the representative firm’s optimal investment and labour hiring decisions from first principles by differentiating the profit function with respect to capital and labour. Finally we shall look at how asymmetric information and the credit crisis affects our economy.

Under: Macroeconomics