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Q. Show the investment function in the IS-LM model?
The investment function in the IS-LM model
Investment was an exogenous variable in cross model owing to the fact that interest rate was exogenous. Now that interest rate is endogenous, investment will be endogenous. As for classical model, investment relies negatively on the real interest rate but then since R = r in the IS-LM model, we can make investment a function of R: I = I(R).
Q. Show the Destruction of capital? Destruction of capital, for instance, through a war, works in the opposite way. Marginal product of labor falls, GDP per capita falls and po
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