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Investment Function

Investment  function is the other important determinant of the aggregate demand, apart from the consumption function, explained in the previous chapter. Like the consumption function, the investment function is also related to the aggregate income in the economy as shown in Fig.4.1 Mathematically, = I = f (y). The consumption function is assumed to be stable in the short run under the Keynesian Analysis. Hence, the investment function becomes the main document of the level of income, output and employment in the economy. This is true not only of Keynesian and post- Keynesian theorists, but also of pre-Keynesian business cycle theories.


The investment refers to the value of that part of the aggregate output which may take the form of new plant or capital equipment, new structures, net business inventors. Saving when actually invested creates capital. The investment can be distinguished on various basis.
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