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Ch 6 ECON

Business Invesment

QuestionAnswer
Business Investment The purchase of new goods and services by all types of businesses in the United States.
Components of Investment 1) Business purchases of new equipment 2) Changes in inventory 3) All construction, including homes of all types
What Determines Investment? 1) Sales Outlook 2) Capacity Utilization Rate 3) Interest Rate 4) Expected Rate of Profit
Sales Outlook Estimations/expectations of future sales as a result of the investment
Capacity Utilization Rate Essentially measure how busy you are. If you are busy now, you are likely to invest.
Interest Rate Everyone borrows to have the funds to invest. At higher interest rates, too expensive to borrow.
Expected Rate of Profit Determinants of Investment Expected Rate of Profit Expected Rate of Profit = Expected profits Money invested The higher this figure, the more likely that investment will take place.
Three types of business ownership in the United States 1) Proprietorship 2) Partnership 3) Corporation
Proprietorship: Unincorporated with single owner Usually small. Nearly all small businesses are sole proprietorships.
Disadvantages of Sole Proprietorship 1) Lot of work for 1 person 2) Owner can be sued for everything 3) Harder to raise capital
Partnership Partnership: Two or more owners. No legal limit to the number of owners, although in practice a dozen or so is the maximum. Law firms, doctors’ offices.
Partnership: Disadvantages The firm must be dissolved when a partner dies, quits or becomes disabled. Unlimited liability – both partners legally responsible for all debts.
Corporation A business owned by stockholders.
Corporations advantage Limited liability Owners not responsible for actions or debts of the corporation. Nearly all large businesses are corporations.
Created by: bellam08
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