Final answer:
Investment is considered unstable due to its sensitivity to energy prices, government policies, and the varying rates of return and risk levels. These factors influence investors' behavior, causing shifts in the supply of financial capital and contributing to investment's variability as a component of aggregate demand.
Step-by-step explanation:
Investment in the economic context is considered relatively unstable when compared to consumption and savings, primarily because it is highly sensitive to a variety of factors that can affect its expected profitability. For instance, fluctuations in energy prices can directly impact the returns on investments that heavily depend on energy inputs, making them more or less profitable. Moreover, government policies play a significant role; when the government offers incentives for investing through mechanisms like the tax code, investment activity can increase, whereas the removal of such incentives or the raising of business taxes can deter investment.
Additionally, the rates of return and risk associated with financial investments are key considerations for investors. If a particular investment becomes riskier or offers a lower return, investors are likely to redirect their capital to more attractive alternatives, thereby making the market for the initial investment less stable. The detailed considerations of risk and returns directly influence the supply curves of financial capital for different types of investments.
These factors contribute to why John Maynard Keynes identified business investment as the most variable component of aggregate demand, highlighting its potential for instability.