At the risk of annoying some people, we shall refer to these as the “Hayekian” and “Keynesian” perspectives. The Hayekian perspective conceives of investment as the adjustment to equilibrium and thus the optimal amount of investment is effectively a decision on the optimal speed of adjustment. A firm may decide it needs a factory (the “capital stock” decision), but its decision on how fast to build it, how much to spend each month building it, etc. — effectively, the “investment” decision — is a separate consideration.
If the liquidity or risk characteristics of securities differ, … then changes in relative demands by a large purchaser have potential to alter relative security prices. The same logic might lead the central bank to consider purchasing assets other than government securities, such as corporate bonds or stocks. Please follow and like us:0