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| Home About the TEDC The TEDC at Work Commercial Areas Doing Business in Teaneck Real Estate Community Resources In the News Maps & Directions Terms / Conditions / Policies Contact Us | FULL Keynes. The function and investments balance in the goods market. Keynes building investment function using the concept of marginal efficiency of capital. He anticipates construction to his remark that solving the problem of feasibility of investments and their alleged size, the entrepreneur compares the estimated (perspective) the income from each investment with the relevant costs. However, such a comparison is not as absolute values, because the costs and receive revenues are separated from each other in time. So Keynes counts, on the one hand, the costs associated with investments, but on the other - revenue, anticipated at the time the investment is carried out, and called the marginal efficiency of capital that the rate of interest which equates investment costs and expected revenues from them. For each type of marginal efficiency of capital is different, and only the largest of all these marginal efficiencies can be considered as the marginal efficiency of capital in general. According to Keynes, with an increase in the supply of capital marginal efficiency of capital is reduced, firstly, by virtue of the fact that, as a rule, it reduces revenue perspective, and secondly, because the increase in production of capital increases the price of its proposal. But the entrepreneur who produces investment, except for payment of capital goods, bears and other costs: the percentage of pay (if you use the borrowed funds). But even if he invests his own money, he still pays for the so-called opportunity costs of the essence of which lies in the fact that he could benefit by using these tools differently. Approximate value of opportunity costs given the prevailing market rate of interest. Therefore, the condition of positivity of the marginal efficiency of capital is not enough to invest; the entrepreneur requires that the marginal efficiency was higher or at least equal to the rate of interest. Indeed, if the marginal efficiency of capital below the rate of interest, the entrepreneur is better to use own funds otherwise without investing them, or not to use borrowed funds for investment. In other words, the entrepreneur increases the amount of investment as long as the marginal efficiency of capital is equal to the rate of interest. |
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