we now move from a single firm’s investment decision to total demand for investment goods by the entire business sector.
To cumulate the investment demanded for each rate of return, r, we add the amounts of investment that will yield each particular rate of return r or higher.
Because of the marginal-benefit–marginal-cost rule that investment projects should be undertaken up to the point where r = i, the real interest rate and expected rate of return are both added to the vertical axis
There is an inverse relationship because the higher the interest rate (“cost of investment”), the less firms will want to invest
Acquisition, maintenance, and operating costs
Business taxes
Technological change
Stock of capital goods on hand
When the economy is overstocked with production facilities and firms have excessive inventories of finished goods, the expected rate of return on new investment declines.
When the economy is understocked with production facilities and when firms are selling their output as fast as they can produce it, the expected rate of return on new investment increases and the investment demand curve shifts rightward.
Planned inventory changes
Expectations
Variability of expectations
Business expectations can change quickly when some event suggests a significant possible change in future business conditions.
Durability
Irregularity of innovation
Variability of profits
Any change in income will change both consumption and saving in the same direction as and by a fraction of the change in income.
The multiplier effect occurs because an initial change in spending will set off a spending chain throughout the economy.
ex. refer to the below figure. investment spending increases by $5 billion and there is an MPC of ==0.75.==