The Chimera of Macroeconomics

  With regard to the gross domestic investment ( I for investment of the national income accounting), we quote the following from Chapter 3 of N. Gregory Mankiw, Macroeconomics : Investment depends on the real interest rate because the interest rate is the cost of borrowing . The investment function slopes downward: when the interest rises, fewer investment projects are profitable.   In the reality, there is no way for the rest of us tell money out of GDP ( Y= C+ I ) from money of liquidity preference, money of “borrowing” or money supply in general   Question. With the above said, the real question is what would we choose for the purpose of investing the  money in hands? 1)      Whatever the national income accountant enters as the real GDI ( I ) to the books 2)      The stocks of FAANG 3)      The stocks of Berkshire Hathaway 4)      Residential houses in Florida ...

  We often refer to 5W 1H. With us (Who) and the community (Where) given, we usually ask the Why question first, followed by What, When and How.   Question 1 . Why do we make investment? Is that for the future return or in avoidance of “the opportunity cost” now? Anyone in the right mind would choose the former. More specifically, investment is for the return per dollar (1) per period (1), or the rate of return in percentage per annum . The percentage is nothing other than certain numeric per 100 , where the unity (1) is indexed to 100. “The rate of return” in Finance is somehow called “the interest rate” ( i for nominal, r for real) in Economics.   Question 2. What do we invest in? The most probable answer would be: the best- expected return after deduction of all transaction costs (including risk premiums of various types). Question 3 . What is the most urgent thing you would like as alternative to your investment decision? How often, if ever, would it be “...