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Economic Definition of investment demand. Defined.

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Term investment demand Definition: The negative relation between investment expenditures and the interest rate, based on the marginal efficiency of investment for different capital investment projects. Business firms generally compare the expected return on physical capital (the marginal efficiency of investment) with the return on financial capital (the interest rate). Should the marginal efficiency of investment be greater than or equal to the interest rate, then the capital investment is undertaken. Because more investment projects exist with lower rates of return than higher, the relation between interest rates and investment expenditures is negative.


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