Investment spending directly influences long-run aggregate supply (LRAS) by shifting the curve to the left due to increased capital costs, ultimately hindering economic growth.

Investment spending is important because it helps businesses buy new tools, buildings, and technology, which can make them more productive. When companies invest a lot, they can produce more goods and services, which can shift the long-run aggregate supply (LRAS) curve to the right, indicating economic growth. However, if the costs of capital—like borrowing money or buying equipment—go up, businesses might cut back on their investments. This decrease in investment can shift the LRAS curve to the left, meaning the economy might grow more slowly. For example, if a factory decides not to buy new machinery because it’s too expensive, it can produce less over time, slowing down overall economic growth.