A great deal of effort has been devoted by the government of the United Kingdom since the war in promoting the cause of investment in fixed capital. To this purpose a plethora of grants and allowances has been tried, and their effects have been analysed in a variety of studies, both theoretical and empirical (for example, Agarwala and Goodson, 1969; Feldstein and Flemming, 1970; King, 1972). My purpose in adding to this already fairly extensive literature is to consider, in the context of a simple theoretical model, the relation between the effectiveness of policies designed to stimulate investment and the expectations of firms involved in making the investment decisions. The first section of the paper contains a formulation of the model. This is followed by a study of the effects of expansionary government policy in section II, some discussion of depressive policies in section III and finally some concluding remarks.