Inducement to Invest and MEC 
  Invt. is a flow concept while capital is stock
    If  gross  Invt.  exceeds  replacement  invt.,  net  Invt.  will  be  positive  and 
  economy’s capital stock will ↑ by net Invt. i.e. ΔK = It.
   If the economy has to grow, its capital stock must also ↑, and CoR must also ↓ 
  by adopting capital saving techniques of production.
  Thus, real Invt. is net addition to the existing stock of capital
  Keynes and many other economists also include change in inventories of in Invt.
  Inventories are often called liquid capital.
 Inducement to invest depends upon
  Invt.- two types:
 (1)Autonomous, and 
 (2)Induced
  Keynes believed that level of Invt. depends upon:
 I.     MEC, and
 II.   Rate of Interest (r)
   He thought changes in the level of income will not affect Invt
  This view of Keynes is based upon his preoccupation with short-run problems.
  He belived that changes in level of income will affect Invt. only in the long-run
  Distinction between autonomous and induced Invt. has been made by post-
       Keynsian Ects.
 Motivation of Invt.
 Invt. decisions of entrepreneurs  are principally influenced by profit 
  motive
  In estimating profit, which may be expected to accrue to a firm three 
  elements are crucial: 
 1. Expected income flow for the capital project or good during the 
  useful life of the project
 2. Purchase or supply price or cost of the capital good
 3. Market (r) or cost of financing capital good or project. 
 Estimating expected income flows and useful life of the plant is an 
  exercise in future forecasting and both are uncertain.
 Determinants of Inducement to Invest
 1. Expected rate of profit which Keynes called as MEC, and 
 2. Rate of interest i.e. (r)
 If MEC > (r), this will induce people to invest in machinery or factory, 
  hence new Invt. will take place 
 If MEC < (r), then people will prefer to lend and earn (r) and Invt. 
  will not be undertaken.
 Equi. of entrepreneur will be established where MEC = (r)
 Of the two determinants of inducement to invest MEC is of 
  comparatively greater importance than (r), because (r) in the short-run 
  is more or less sticky and does not change
  But changes in expectations of profits greatly affect MEC and make 
  Invt. unstable and volatile
 Changes in MEC greatly affect Invt, which causes AD to fluctuate and 
  thereby economic activities.
 Good profit expectations => large Invt => ↑ AD => boom & 
  prosperity