What are the four main determinants of investment? How would a change in interest rates affect investment?

The four main determinants of investment are: \n\n1. Interest rates: It's the cost of borrowing. When interest rates are high, it's expensive for businesses to borrow, and thus they might curb their investment plans. When interest rates are low, businesses may borrow and invest more. \n\n2. Expected returns: This refers to the profits that firms anticipate they will make from their investments. If businesses expect high returns from their investments, they are more likely to invest. \n\n3. Financial Conditions: Firms also consider financial conditions, such as the availability of credit, cash flow and existing debt, when deciding to invest. \n\n4. Economic growth: When the economy is expanding, firms often see this as a good time to invest, while contraction might lead them to hold off on investment.

A change in interest rates affects investment significantly. If interest rates increase, the cost of borrowing increases. This may deter some businesses from investing, as the return they expect to earn from their investment may not compensate for the high interest they would have to pay on their loan. Conversely, if interest rates decrease, the cost of borrowing decreases. This may encourage more businesses to invest, as the return they expect to earn from their investment is now likely to exceed the lower interest they would have to pay on their loan. Hence a change in interest rates directly affects business investment.