Also, the higher the interest rate, the lower investment expenditure by the business sector. If capacity utilization increases, so will business spending. A change in expectations can increase or decrease household and business spending and saving. Depending on the monetary7 policy, household and business spending and savings can increase or decrease. Depreciation is when an asset s value decreases.
Net investment is gross investment minus depreciation.
Corporate financing gap is the increase in a firm s liabilities, which is equal to the increase in assets held minus retained earnings. Money is a financial asset. The leverage ratio is the ratio of debt to equity on a firm s balance sheet. The higher the ratio, the more severe the borrowing constraint. Demand for real assets can change if there is a change in household disposable income, household wealth or net worth, the yield or return on real assets, and the market interest rate on financial assets.