Page 89 - Macroeconomics. book docx_Neat

5- investment and National Income (Simple Link)

Investment affects national income through aggregate demand.

Aggregate Demand = C + I + G + (X - M)

If investment increases, aggregate demand increases, leading to higher output and

income.

6- Accelerator Principle

The accelerator principle states that investment depends on changes in income.
If income increases, firms invest more to meet higher demand.

If income decreases, investment falls.

Example:

If income increases from 1000 to 1200, firms expect higher demand.
They invest in new machines and factories.

If income falls, they reduce investment plans.

7- Investment in Real Life (Practical View)

Examples of investment:

- A factory buying new machines

- A company building a new warehouse

- A farm buying modern equipment

- A university building new classrooms

All these increase productive capacity.

8- Multiplier of Investment

Meaning of the Investment Multiplier

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