ABSTRACT
This chapter deals with the demand for capital goods. The market for capital goods is crucial to the economy. Since Adam Smith says that capital goods are the important source of productivity growth, growth in the standard of living, and the wealth of nations. But capital goods may also have a negative effect on the economy. John Maynard Keynes contended that spending on capital goods, investment spending is volatile and the cause of the business cycle. The market for capital goods is, accordingly, of great interest and importance. A basic assumption is that the supply of capital goods responds demand. The demand for capital goods can be called the demand for investment goods. This is because spending on capital goods often requires large monetary outlays with profits dependent on the flow of future revenues and costs. Because of the magnitude of the funds required, investment spending tends to be shown as a function of the interest rate.
