Macroeconomics | BBE | Lesson 17| Determinants of Inventory Investment | Real Interest Rate |

This lesson explains the determinants 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.
Real interest rate
When a firm holds a good in inventory and sells it tomorrow rather than selling it today, it gives up the interest rate it could have earned between today and tomorrow. Thus, the real interest rate measures the opportunity cost of holding inventories.
When the real interest rises, holding inventories becomes more costly, so rational firms try to reduce stock. Therefore an increase in the real interest rate depresses inventory investment.
Credit Conditions
Many firms rely on bank loans to finance their purchases of inventories, they cut back when these loans are hard to come by.
Example: During the 2008 crisis, firms reduced their inventory holdings substantially.
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[@pankajkauahik5733]

You have made this subject easy and interesting with practical examples! Thanks👍

[@dr.triptisangwan]

All the best 👍🏻

[@anoopgoyat3524]

Really good 👍

[@dr.triptisangwan]

Thank you 👍🏻

[@enjoythelifewithsangwan9473]

Great

[@dr.triptisangwan]

Thank you

[@kanandaverma9033]

Thank you for posting this topic Ma’am! 😄

[@dr.triptisangwan]

Most welcome 😀

[@swadeshgoyat3897]

Good 👍

[@dr.triptisangwan]

Thank you 👍🏻

[@nishthakaushik6874]

Mam plz start stats and econometrics session for ugc net

[@dr.triptisangwan]

Ok. Will start asap

[@kdasurrenderedsoul7613]

Hare Krishna 😊