Macroeconomics | BBE | Lesson 13 | BBE The Stock Market Theory | Tobins q Theory of Investment | DU

This lesson discusses The Stock Market and Tobin’q or q Theory of Investment. It also explains the relation between Neo Classical Theory of Business Fixed Investment and The Stock Market and Tobin’q or q Theory of Investment. It is important for the 4th semester macroeconomics BBE students of Delhi University. It is relevant for other courses like BBA, Economics hons, for the graduation and post graduation level and for competitive exams like CUET Economics, IAS economics optional, Indian Economic Service and the NET JRF Economics aspirants.
Many economists see a link between fluctuations in investment and fluctuations in the stock market.
Stock refers to the shares in the ownership of corporations.
Stock market refers to the market in which these shares are traded.
Stock prices tend to be high when the firms have many opportunities for profitable investment, as this means higher future income for the shareholders. Thus, stock prices reflect the incentives to invest.
According to Nobel Prize winning economist James Tobin- firms base their investment decisions on the following ratio:
q= Market Value of Installed Capital / Replacement Cost of Installed Capital
This is called Tobin’s q.
If q is greater than 1 that is the stock market values installed capital more than the replacement cost. So, managers will buy more stock.
If q is less than 1, the managers will not replace capital as it wears out.
So, the advantage of q theory is that it reflects the expected future profitability of capital as well as the current profitability.
Relation between Neoclassical Model and Tobin’s q theory:
1. If Marginal Productivity of capital is greater than the cost of capital then firms are earning profit on their installed capital. This raises the market value of the firm’s stock and this represents the higher value of q.
2. If Marginal Productivity of capital is less than the cost of capital, then the firms are having loss on the installed capital and this reduces the market value of the firms’s stock and this represents the lower value of q.
#economicsshortvideo #indianeconomicservice #jrfeconomics #maeconomicsentrance #neteconomics #cuet #cuetmaeconomics #cueteconomics #economics #macroeconomics #graduationeconomics #postgraduaationeconomics #cuetpgeconomics #cuetugeconomics #triptisangwan #commonuniversityentrancetest #consumptionfunction #consumption #economicsoptional #optionaleconomics #indianadministarativeservice #graduationleveleconomics #commonuniversityentrancetest #triptisangwan #macroeconomics #BBE #bbaeconomics #bcomleveleconomics #baleveleconomics #businesseconomics #semester4 #DU #Delhi University #investment #investmenttheory #rentalcost #costofcapital #profit #revenue #inflation #realinterestrate #interestrate #depreciation #capital #marginalproductivity #marginalproductivityofcapital #netinvestment #changeincapitalstock #neoclassicalmodel #neoclassicaltheory #businessfixedinvestment #investmenttheory #Steadystatelevelofcapitalstock #qtheoryofinvestment #jamestobin #jamestobin’sqtheory #tobinsqtheoryofinvestment #tobinsq #stock #stockmarket #stockprices #replacementcost #marketvalue #installedcapital
Telegram Link: t.me/triptisan...
Google Drive Link to Know you more:
docs.google.co...
Macroeconomics and Applications Playlist : • Macroeconomics and App...

[@arpit1356]

Thank you so much for explaining the Tobins q theory so well, have been waiting for it some time. Thanks again, kudos 👍

[@dr.triptisangwan]

Welcome 🤗

[@kanandaverma9033]

Thank you for posting this video Ma’am. Was waiting for this video for a long time 😊

[@dr.triptisangwan]

Welcome 🤗

[@anoopgoyat3524]

This is examination time please upload covering all topics. Thanks

[@dr.triptisangwan]

Welcome 🤗

[@enjoythelifewithsangwan9473]

Pls upload videos on continuous basis

[@dr.triptisangwan]

Surely

[@lawkumar3605]

Hello ma'am, it's really of great help. Also pls share the notes along with the lectures.

[@dr.triptisangwan]

All the best 👍🏻

[@vidhigovil8657]

Hello mam
Thanks indeed for such wonderful lessons
Also it wud be great if u can upload subsequent lectures as well , as early as possible coz exam is near
and some important topics are to be covered.
so i request u to do the needful asap
Thanking you

[@dr.triptisangwan]

Sure

[@karanvirsangwan8696]

Thanks nice knowledge for everyone

[@dr.triptisangwan]

Welcome 🤗

[@khadeezasheikh9075]

Best explanation!

[@dr.triptisangwan]

👍🏻

[@Chandan-um1tf]

you use mankiw book?

[@digitalstoic1]

Ma'am Do stock markets actually reflect that the Business is earning profit on their installed capital?
I mean, if we consider other factors.

[@harsh71810]

Legends Watching a day before exam😂

[@dhruvkumar3281]

🌚

[@harsh71810]

@@dhruvkumar3281 are Padai likhai chalri h☺️😂🔥