Download Investment demand curve Investment demand curve

Chapter 9: Introduction to Keynesian Thought
9-50 Investment Changes
Investment demand curve
Changes in i-rates
move you along the
investment demand
curve.
Interest rates fall,
Investment increases.
Investment demand curve
Changes in i-rates
move you along the
investment demand
curve.
Chapter 9: Introduction to Keynesian Thought
9-50 Investment Changes
Graphically
Interest rates changes
– Movements along the investment
demand curve.
Expected Rate of Return changes
– Shifts of the curve.
Investment demand curve
Changes in expected
rate of return shift the
investment demand
curve.
Increase
Decrease
Expected Rate of Return is
effected by:
Costs of buying, operating, and
maintaining equipment.
Technological change.
Stock of capital goods on hand
(capacity utilization rates)
Expectations about future sales
and/or profitability.
Business taxes.
Chapter 9: Introduction to Keynesian Thought
9-50 Investment Changes
Fed lowers i-rates to up I
But expectations are falling
Chapter 9: Introduction to Keynesian Thought
9-50 Investment Changes
Keynesian Theory
Control the economy by controlling
aggregate spending.
GDP = C + Ig + G + Xn
Ig is effected by the interest rates
and….
Non-interest determinants of I
Costs of buying, operating, and
maintaining equipment.
Technological change.
Stock of capital goods on hand
(capacity utilization rates)
Expectations about future sales
and/or profitability.
Business taxes.