A business investment boom is going to help the US economy out of its COVID recession funk

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Opinion | A business investment boom is going to help the US economy out of its COVID recession funk. By Neil Dutta of RenMacLLC.

This increased investment should continue for the next year and help the US economy recover.

The COVID recovery's strong investment gains can be traced primarily to equipment and IPP. By contrast, structures investment remains weak as nonresidential construction spending and mining activity have yet to get back to pre-pandemic levels. Investment is the change in the capital stock. Assume that one unit of capital creates two units of GDP. If GDP is rising by two units per year, the capital stock must grow by one unit. So, investment will be one unit. Now, if the economy gets a leg up and growth doubles to four units, investment must double to two units per year in order to maintain the same ratio of capital to output.

 

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