Interest rate and Investment Demand

How does business make investments decision?
-cost/benefit analysis
How determine business?
-expected rate of returns
How business count cost?
-interest cost
How business determine amount investment they undertake?
-compare expected rate of return to interest cost
-if expected return> interest cost, then invest 
- if expected return< interest cost, then do not invest. 


Real vs. Nominal:
 
What is the difference?
-nominal is the observable rate of interest. Real subtracts out inflation (pi%) and is only known ex post facto. 
What then determines the cost of investment decisions? 
-the real interest rate (r%)

What is the shape of the investment demand curve? 
-downward sloping
Why?
-when interest rates are high, fewer investments are profitable; when interest rates are low, more investments are profitable. 

Shifts in investment Demand:
-cost of production
-business taxes
-technology change
-stock of capital
-expectations