# Does aggregate demand increase investments?

I just read that increase in aggregate demand increases investment for a given interest rate. How is it possible because when aggregate demand increases, this shifts the demand for money to the right leading to higher interest rates. Higher interest rates should reduce investment. Am I correct in with my argument? And help will be appreciated.

• Is this question about the IS-LM model? Jun 2 '15 at 14:13
• Additionally, are you using an RBC model? Oct 1 '15 at 19:38

An investment project has expected returns $R$ and expected costs $C$. Investments will happen as long as $R > C$.
An increase demand will increase the potential return from projects, $R$. An increase in interest rates will increase the costs $C$.
Now all that matters is whether the change in $R$ through increased in demand is larger than the increase in $C$ through the interest rates. I would argue that the demand for money argument that you are bringing has rather second order effects.