An investment will bring the firm additional revenue if it helps the firm sell more product. This suggests that the overall level of output (or Gnp) will be an important determinant of investment. When factories are lying idle, firms have relatively little need for new factories, so investment is low. More generally.

Investment depends upon the revenues that will be generated by the state of overall economic activity. Cost studies find that investment is very sensitive to the business cycle.A recent example of a large output effect was seen during the business downturn of 1979 & 1982 when output fell sharply and investment declined by 15 percent.