What are the determinants of investment?
The determinants of investment are the interest rate, profit expectations, technological change, the cost of capital goods, and the rate at which capacity is utilized. Investment is a positive function of expected profit, technological change that reduces costs, and the rate at which capacity is utilized. If any of these factors increase, investment will increase. Investment is a negative function of interest rates and the cost of capital goods. If either of these determinants increases, investment will decrease. Because these determinants of investment are so variable over the business cycle, investment is the most volatile component of aggregate spending. • What are the determinants of government spending? Government spending is assumed to be autonomous of income. The government authorities set government spending according to political and other considerations at whatever level they choose. • What are the determinants of net exports? Net exports are exports minus imports. The determ
