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{{Technical|date=November 2014}}

The '''investment function''' is a summary of the variables that influence the levels of aggregate investments. It can be formalized as follows:

I=f(r,ΔY,q)
- + +
where r is the real interest rate, Y the GDP and q is Tobin's q. The signs under the variables simply tell us if the variable influences investment in a positive or negative way (for instance, if real interest rates were to rise, investments would correspondingly fall).

The reason for [[investment]] being inversely related to the [[Interest rate]] is simply because the interest rate is a measure of the [[opportunity cost]] of those resources. If the resources instead of financing the investment could be invested in financial assets, there is an opportunity cost of (1+r), where r is the interest rate. This implies higher investment spending with a lower interest rate. When [[GDP]] increases, the output and the capacity utilization increases. This results in an increase of capital investment. At last, a higher [[Tobins q]] is represented when the market puts a high value of the installed capital and buys stocks in the firm for a higher price. The firm can then raise more resources per share issued and increase their investments.

==References==
{{reflist}}
*Burda, Wyplosz (2005): Macroeconomics: A European Text, Fourth Edition, Oxford University Press

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[[Category:Investment]]
[[Category:Macroeconomic indicators]]

Investment function - Revision history

46.18.177.138: /* References */ Category