Commodity market deals with the sale of and purchase of goods. Equilibrium in the commodity market is attained when the aggregate demand for goods equals the aggregate supply or the total investment equals total swings.

The saving function (S) refers to the supply of capital or the aggregate supply. Saving is a function of rate of interest. There exists a positive relationship between the rate of interest and savings. At higher rate of interest, savings are more than at a lower rate of interest. The direct relationship between the rate of interest and saving.

In SS is the saving curve which slopes upwards to the right. At the rate of interest r₀, saving is M( ). As the rate of interest rises to or₂ , the savings also increase to OM₂ . Conversely, a fall in the rate of interest to or₁ causes a decrease in the saving to OM₁.

The investment function (I) refers to the demand for capital or aggregate demand. investment is also a function of rate of interest. Rate of interest and investment are inversely related. At a high rate of interest, the demand for capital for investment is less than at a low rate of interest. The inverse relationship between rate of interest and investment.

In II is the investment curve. The downward slope of the II curve shows inverse relationship between the rate of interest and investment. At the rate of interest Or₀ the demand for capital for investment is OM₀. As the rate of interest rises to Or₁, the investment falls to OM₁. Conversely, if the rate of interest falls to OM₁, the investment rises to OM₂.


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