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HomeHomework HelpeconomicsInvestment and Long-Run Supply

Investment and Long-Run Supply

Investment spending plays a critical role in shaping long-run aggregate supply (LRAS) by facilitating capital formation, which in turn enhances productivity. As businesses invest in new equipment and technology, this leads to increased capital stock, shifting the LRAS curve to the right. Understanding this relationship is vital for analyzing how investment decisions influence overall economic growth and stability.

intermediate
3 hours
Economics
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Overview

Investment plays a vital role in shaping the economy by allocating resources to generate future profits. It influences long-run supply by increasing production capacity, which can lead to economic growth and market stability. Understanding the relationship between investment and long-run supply help...

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Key Terms

Investment
The allocation of resources to generate income or profit.

Example: Buying stocks is a form of investment.

Long-Run Supply
The total quantity of a good that producers are willing to sell over a long period.

Example: Long-run supply adjusts to changes in production capacity.

Supply Curve
A graph showing the relationship between price and quantity supplied.

Example: The upward slope of the supply curve indicates higher prices lead to more supply.

Market Equilibrium
The point where supply equals demand.

Example: At market equilibrium, there is no surplus or shortage.

Economic Growth
An increase in the production of goods and services in an economy.

Example: Investment in technology can drive economic growth.

Production Capacity
The maximum output that a company can produce with its available resources.

Example: A factory's production capacity can be increased with new machinery.

Related Topics

Microeconomics
The study of individual markets and the behavior of consumers and firms.
intermediate
Macroeconomics
The study of the economy as a whole, including inflation, unemployment, and economic growth.
intermediate
Financial Markets
The marketplace where securities, commodities, and other financial assets are traded.
intermediate

Key Concepts

Investment TypesSupply CurveMarket EquilibriumEconomic Growth