Expected profits and interest rates are two basic determinants of investment.
When businesses assess whether to invest in new projects or expand operations, they weigh the expected future profits from these investments against the cost of financing them, which is influenced by current interest rates. High expected profits may encourage more investment, while higher interest rates can discourage borrowing and investment due to increased costs. Conversely, lower interest rates can stimulate investment by making borrowing cheaper. Thus, both factors play a crucial role in shaping business investment decisions.