Explain why a rise in investment should help to increase the rate of growth of the UK economy (2024)

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Investment is part of Aggregate Demand (AD). If there is an increase in investment then there will be a rise in the demand for capital goods and this means that the firms supplying the goods will have an increase in output and will therefore see a rise in real national output. The increase in investment will also have a multiplier effect. Rising incomes in the capital goods sector will boost consumption resulting in a further increase in national output. Investment in technology can improve the supply side of the economy, as technological increases can increase productivity and mean firms can produce at lower costs and therefore we see an increase in real national output. The UK saw 2.5 billion worth of investment in technology in 2018.
Two diagrams can be shown here to help improve the answer.There can be a shift in the LRAS curve to the rightThere can be a shift in the SRAS curve to the right as productivity will increase, meaning cost of production is lower. This will result in greater output and lower prices.

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