In addition to the rate of return, investment demand is determined by state of technology, maintenance and level of existing capital, as well as expectations about future sales. Some of these components are highly unstable, such as new inventions and innovations and changes in future sales expectations. Thus, it is not entirely useful to model investment with other elements than investment demand and the given interest rate.
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Historically, the investment component of aggregate expenditure and of gross national product has been the most erratic of all. In periods of economic slow down, it is often negative. It jumps back up as soon as expectations of future sales look brighter. |
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