Investment Function The investment function refers to investment -interest rate relationship. There is a functional and inverse relationship between rate of interest and investment. The investment function slopes downward. I = f (r) I= Investment (Dependent variable) r = Rate of interest (Independent variable) Duesenberry .
. . Meaning of investment The term investment means purchase of stocks and shares, debentures, government bonds and equities. According to Keynes, it is only financial investment and not real investment.
This type of investment does result in an addition to the stock of real capital of the nation. In the views of Keynes , Investment includes expenditure on capital investment. . .
. Types of investment Autonomous Investment and Induced Investment i) Autonomous investment: Autonomous investment is the expenditure on capital formation, which is independent of the change in income, rate of interest or rate of profit.