What is Investment?
-Money spent or expenditures on:
-New plants (factories)
-Capit. Equipment (machinery)
-Technology(hardware & software)
-New homes
-Inventories(good sold by producers)

Expected Rate of Return
-How does business make investment decisions
-cost/benefits analysis
How does business determine the benefits?
-Expected ratio of return

How does business count the cost?
-Interest costs

How does business determine the amount of investment they undertake?
Compare expected rate of return to interest cost

If expected return> interest cost, then invest
                            < interest cost, then dont

Real (R%) v. Nominal (i%)
Whats the difference?
-Nominal is the observance rate of interest. Real subtracts out inflation (pi%) and is only known as expost facto

How do you compute the real?
r%= i%-pi%

What determines the amount of an investment decision
The real interest rate(%)

Investment Demand Curve (ID)
-Downward sloping

Shifts
-cost of production
-business taxes
-Tech changes
-Stock of capital
-expectations

Aggregate supply
- The level of Real GDP that firms will produce at each price level. (PL)
Long Run- Period of time where input prices are completely flexible and adjust to changes in PL.
The level of real GDP supplied is independent of PL.
Short run- POT. where input are sticky and do not adjust to changes in PL. The level of Real GDP supplied is directly related to the PL.
LRAS- Long run Agg. Supply- marks the level of full employment in the economy (analogous to PPC)
SRAS- Because input prices are sticky in the short run, the SRAS is upward sloping.