Investment function

The investment function is a summary of the variables that influence the levels of aggregate investments. It can be formalized as follows:

I=f(r,ΔY,q)

where r is the real interest rate, Y the GDP and q is Tobin's q. The signs under the variables simply tell us if the variable influences investment in a positive or negative way (for instance, if real interest rates were to rise, investments would correspondingly fall).