What is the primary relationship shown in the investment function graph?

The investment function graph primarily illustrates the trade-off between interest rates and investment levels. In macroeconomic theory, it is widely understood that as interest rates decrease, borrowing becomes less expensive for businesses and consumers. This typically leads to an increase in investment spending, as firms are more willing to finance new projects and expansion when the cost of borrowing is lower. Conversely, when interest rates rise, the cost of borrowing increases, which can lead to a decrease in investment as companies may choose to delay or reduce their investment plans due to higher costs.

This relationship reflects the fundamental principle of how monetary policy can influence economic activity through its impact on interest rates. Understanding this trade-off is crucial for analyzing shifts in investment behavior in response to changes in economic conditions.