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Fact 30.3.1 Growth Forecast Through 2016
With low interest rates, business investment and trade are expected to bring growth through 2016.
Source: TD Economics, September 25, 2014
-Consider Fact 30.3.1. An increase in business investment
A)may increase or decrease aggregate demand depending on the effect on government expenditure.
B)increases aggregate planned expenditure, which increases income and induces an increase in government expenditure.
C)increases aggregate planned expenditure, which increases income and induces an increase in consumption expenditure.
D)increases aggregate planned expenditure only if the economy has a recessionary gap.
E)creates a movement up along the aggregate demand curve.

Question

Quizplus · Accepted Answer

An increase in business investment increases aggregate planned expenditure, which in turn increases income and induces an increase in consumption expenditure. This creates a multiplier effect on the economy, leading to an overall increase in aggregate demand.

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