If the equilibrium level of output is below the full employment level as in the graph above the result is unemployment. Demand-pull inflation is inflation caused by an increase in AD.

Terms in this set (10) Which set of changes will definitely shift the aggregate demand (AD) curve to the right? real balance effect.

If the AD curve shifts to the left, then the equilibrium quantity of output and the price level will fall. Whether equilibrium output changes relatively more than the price level or whether the price level changes relatively more than output is determined by where the AD curve intersects with the AS curve.

The short-run aggregate supply curve (SRAS) lets us capture how all of the firms in an economy respond to price stickiness. When prices are sticky, the SRAS curve will slope upward. The SRAS curve shows that a higher price level leads to more output.

An increase in the value of the stock market would make individuals feel wealthier and thus more confident about their economic situation. This would likely cause an increase in consumer confidence leading to an increase in consumer spending, shifting the AD curve to the right.

A reduction in investment would shift the aggregate demand curve to the left by an amount equal to the multiplier times the change in investment. The relationship between investment and interest rates is one key to the effectiveness of monetary policy to the economy.

In the long run, the investment will increase the economy’s capacity to produce, which shifts the LRAS curve to the right. The combined effects are that the economy grows, both in terms of potential output and actual output, without inflationary pressure.

Investment is a component of aggregate demand (AD). Therefore, if there is an increase in investment, it will help to boost AD and short-run economic growth. If there is spare capacity, then increased investment and a rise in AD will increase the rate of economic growth.

Business investment can affect the economy’s short-term and long-term growth. Long-term economic growth generally depends on growth in the economy’s productive capacity rather than swings in supply and demand. In turn, faster economic growth generally translates into faster income growth and improved living standards.

Foreign investment is integral to the Australian economy. Foreign investment helps Australia reach its economic potential by providing capital to finance new industries and enhance existing industries, boosting infrastructure and productivity and creating employment opportunities in the process.

Capital deepening increases the marginal product of labor – i.e., it makes labor more productive (because there are now more units of capital per worker). Capital deepening typically increases output through technological improvements (such as a faster copier) that enable higher output per worker.

Human capital is important because it is perceived to increase productivity and thus profitability. So the more a company invests in its employees (i.e., in their education and training), the more productive and profitable it could be.

The initial increase in investment causes a rise in output and so people gain more income, which is then spent causing a further rise in AD. With a strong multiplier effect, there may be a bigger increase in AD in the long-term.

Summary – Investment levels are influenced by: Interest rates (the cost of borrowing) Economic growth (changes in demand) Confidence/expectations. Technological developments (productivity of capital)

Higher savings can help finance higher levels of investment and boost productivity over the longer term. If people save more, it enables the banks to lend more to firms for investment. An economy where savings are very low means that the economy is choosing short-term consumption over long-term investment.

The Rule of 72 is a simplified formula that calculates how long it’ll take for an investment to double in value, based on its rate of return. The Rule of 72 applies to compounded interest rates and is reasonably accurate for interest rates that fall in the range of 6% and 10%.

If you want to double your money in three years, your investments should earn between 21% to 24% (72/3 years) every year. Similarly, if you want to double your money in five years, your investments will need to grow at around 14.4% per year (72/5).

Studies have shown that investments in human capital are essential for sustaining economic growth over time. Heavy investment in the training of workers and a better educated labor force are given credit for much of the growth in per capita incomes and economic productivity.

Another benefit of investing in your human capital is improving your organization’s culture. Better employee satisfaction, engagement, and communication lead to an improved overall culture. Employees want to learn, they want to develop their careers, and they want to enjoy going to the office every day.