Q. What is Investment demand?
Investment demand
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Investment I(r) is assumed to be negatively related to the real interest rate r
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Total demand for investment goods is defined as total amount of investment goods firms wish to purchase under different conditions. Again, as for consumption, there is no 'investment supply' and we frequently use 'Investments' as short for the demand for investment. We use the same symbol I for observed investments and for demand for investments.
In the classical model, investments are also negatively associated to the real interest r. Investments will result in a higher income in the future and with a higher real interest rate, such future income is worth less today. Fewer projects requiring investments would be profitable and investments will declines. Investments are signified by I(r) in the classical model.