KEYNES'S INVESTMENT DEMAND FUNCTION

DETERMINANTS OF INVESTMENT EXPENDITURE Investment expenditure refers to the creation of new assets i.e. an addition to the stock of existing capital assets. According to Keynes investment demand depends upon two factors:  Expected rate of profit which he calls as Marginal Efficiency of Capital (MEC). Investment demand increases with the increase in the expected rate of profit.  The rate of interest (IR). Investment demand decreases with the increase in the rate of interest.

Symbolically, Keynes investment demand is expressed as

Id = f ( MEC, IR)