Page 87 - DECO402_Macro Economics

Macroeconomic Theory Ashwani Panesar, Lovely Professional University

Notes UNIT-10: Investment Function

Contents
Objectives
Introduction
10.1 Investment
10.2 Marginal Efficiency of Capital
10.3 MEC and Rate of Interest
10.4 Investment Demand Curve
10.5 Summary
10.6 Keywords
10.7 Review Questions
10.8 Further Readings

Objectives

After studying this unit, students will be able to:
y Study of investment,
y Know the Marginal Efficiency of Capital,
y Know the investment demand curve.

Introduction

Besides the consumption function of last chapter, investment function is the second important
decider of collective demand. Investment function is also related to national income of economics
like consumption function, as show in figure 10.1. In mathematical form I= f(Y). In the analysis of
Keynes, consumption function is considered constant in short period. So, investment function becomes
main decider of income, production and employment level in economics. It is, not for Keynes and the
theorist after Keynes, but also truth for the trade customer theorist before Keynes.

10.1 Investment

The mean of investment is that part of collective production, which can become the form of new plant
and capital instrument, new structure and new trade goods. Investment can be divided on different
bases.

1. Gross Investment and net Investment

Gross investment is mention the change in new permanent capital property (like House, instrument
and industries etc) and material tables (like raw materials, non-saleable) in a certain time period. Gross
investment can be show signally like that-

80 LOVELY PROFESSIONAL UNIVERSITY