The investment demand schedule in the classical theory of interest rates slopes downward and to the right, reflecting the declining net marginal productivity of capital as the volume of investment grows.

Question

Quizplus · Accepted Answer

In classical theory, the investment demand schedule slopes downward to the right because as more capital is accumulated, the additional output (or productivity) generated by the last unit of capital decreases, making further investments less attractive at the same interest rate.

The Investment Demand Schedule in the Classical Theory of Interest