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January 18, 2019 

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CAPITAL GAINS TAX: A tax on the difference between the sales price of a "capital" asset and it's original purchase price. The capital assets subject to this tax include such things real estate, stocks, and bonds. This tax is frequently a source of controversy between the second and third estates. In that the second estate owns and sells a lot of this sort of capital, they don't like to pay taxes on capital gains. However, because the third estate doesn't have much capital it seems like a pretty good thing to tax. Those who oppose the capital gains tax argue that it takes away funds that would be used for further capital investment, which thus inhibits economic growth. Those who favor it argue that helps equalize unfairly unequal income and wealth distributions.

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INTERCEPT, INVESTMENT LINE:

The intercept of the investment line indicates autonomous investment, investment that does not depend on the level of income or production. This can be thought of as investment that the business sector undertakes regardless of the state of the economy. Autonomous investment is affected by the investment expenditures determinants, which cause a change in the intercept and a shift of the investment line.
Investment Line
Investment Line
The investment line, also termed propensity-to-invest line or investment function, shows the relation between investment and income for the business sector. The income and production measures commonly used are national income and gross domestic product.

A representative investment line is presented in the exhibit to the right. This red line, labeled I in the exhibit, is positively sloped, indicating that greater levels of income generate greater investment by the business sector. This positive relation indicates that the business sector is inclined to divert higher profits generated by an expanding economy to investment expenditures on capital goods.

The investment line graphically illustrates the investment-income relation for the business sector, which is then added to the consumption line to derive the aggregate expenditures line used in Keynesian economics to identify equilibrium income and production.

The intercept of the investment line indicates the intersection point between the investment line and the vertical investment axis. The investment line intersects the vertical axis at a value of $2 trillion. Theoretically, this is a minimum "baseline" level of investment, the amount of investment undertaken if income falls to zero. This intersection indicates autonomous investment--investment unrelated to income. Click the [Intercept] button to illustrate.

Autonomous investment is investment by the business sector that is unrelated to and unaffected by the level of income or production. This is best indicated by a zero level of income. While individual businesses occasionally come face-to-face with autonomous investment, as their own slice of aggregate income drops to zero, for the aggregate economy autonomous investment is mostly an unlikely theoretical extrapolation.

However, from an analytical perspective, the intercept of the investment line is affected by the investment expenditures determinants. These are ceteris paribus factors other than income that affect investment, but which are held constant when the investment line is constructed. Any change in these determinants cause the investment line to shift, which necessarily means a new intercept and a new level of autonomous investment.

<= INTERCEPT, GOVERNMENT PURCHASES LINEINTERCEPT, NET EXPORTS LINE =>


Recommended Citation:

INTERCEPT, INVESTMENT LINE, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2019. [Accessed: January 18, 2019].


Check Out These Related Terms...

     | investment line | slope, investment line | consumption line | intercept, consumption line | intercept, government purchases line | intercept, net exports line | induced investment | autonomous investment | marginal propensity to invest |


Or For A Little Background...

     | investment | investment expenditures | gross private domestic investment | Keynesian economics | macroeconomics | business sector | national income | gross domestic product | determinants |


And For Further Study...

     | induced expenditures | autonomous expenditures | aggregate expenditures | aggregate expenditures line | derivation, consumption line | investment expenditures determinants | Keynesian model | Keynesian equilibrium | injections | injections-leakages model | aggregate demand | paradox of thrift | fiscal policy | multiplier |


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