Distinguish between the return on investment and the return on Essay

Distinguish between the return on investment and the return on capital. take the respective relevance of each to investment decisions - Essay Exampleffect of the aggregate demand curve is the same as the demand curve, it shows the amount that the governance and businesses ar willing to spend on good (Perelman, 2007). Keynes postulates that the capital investment in equipment, plant and machinery will gain the production of goods in an economy.He further, says that investment consists of expending on stocks and finished goods. An increase in interest rate results to a decrease in investment indeed a consequent decrease in the total demand. This happens on the ground that the interest rate and investment have an inverse relationship. The increase in interest rate increases the cost of capital hence decrease in demand total. However, a reduction in interest rate will lower the cost of the capital hence increase in investment and a consequent increase in aggregate investment.Keynes postulates that aggregate demand has a number of components. The demand function is Y=C(Y-T)+I (r) +G+NX (e) where I is income, I is consumption being a function of disposable income, I is investment being a function of interest rate, G is governance expenditure and NX is net exports (exports minus imports).Keynes further ascertained that investment cannot, therefore, be a sole determinant of the aggregate demand. This means that a change in investment chooses to a less proportionate change in the aggregate demand.A rising flow of investment increases the money supply in the economy. The government using its monetary policy, it employs the increase in interest rates to decrease the nominal supply in the economy as it increases the cost of capital (V). Additionally, the increase in the flow of investment increases the money supply in the economy leading to a shift of the money supply upwards and leftwards. This would consequently lead to an increase in prices and the real output ( oil, petrol and