where C is autonomous investment and b is elasticity of investment and R is rate.....
what if elasticity is 0... am i right to conclude that then investment function would be vertical??as now rates would not play ANY role right??
When the Investment Function given by (I = C+bR)..........?
It depends on your graph. If you have interest rates on the x-axis and Investment amount on y-axis, you will have a horizontal line that will cross the y-axis at C, which is the autonomous investment level. Companies will decide on their investment levels, independently from the fluctuations in interest rates.
Reply:That is correct, if the elasticity is 0 people will invest the same portion of their income regardless of the rate of return. i = F(Y,i) = C + bR; C + 0*R = C.
jasmine
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