Net Investment

Replacement Investment
I  f (Yt , Yt 1 , ... , Yt 1 , Yt 2 , ...)
Real interest rate
(r) r Increase in Business Euphoria

Ir < 0

Investment I
Downward Sloping Investment Function Shift in Investment Schedule
 The Aggregate Demand Curve

Price
Level

P2
A decrease
in the price Aggregate
level demand

0 Y Y2 Quantity of
Output
increases the quantity of
goods and services demanded