INVESTMENT
111
The general form of the investment function that the
Q
approach suggests
[see Eq. (4.7)] is that it depends positively on the marginal product of capital
and
NEGATIVELY
ON
INTEREST
RATES
(when factors affecting the price of capital and
depreciation rates can be ignored). The marginal product of capital, in turn,
depends positively on output produced (see the definition for the Cobb–Douglas
case in Appendix 4.1) and negatively on
K
(a large capital stock base dimin-
ishes the marginal productivity of capital). In short,
I
=
I
(
r
(
-
)
,
Y
(
+
)
,
K
(
-
)
)
where
Y
refers to output.
Most macroeconomic ...
Get Macroeconomics, 2nd Edition by Pearson now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
