What is an investment shock and how can it positively or negatively impact the economy? is...

What is an investment shock and how can it positively or negatively impact the economy? is it part of a demand shock?

Expert Solution

Investment shocks are the unprecedented changes in the total level of investment. Investments are the driving forces towards development and growth. Sometimes some negative investment shocks with huge fall in the capital stock with high depreciation rate. This will negatively affect the economic growth. The lowering investment rate will leads to high level of unemployment also. On the other hand, the high level of government expenditure will increase the investment rate and this rising investment rate will create a boom in the economy. This will increase the production level and the employment opportunities also.
Investment shocks are part of demand shocks. This is because of that the shocks in investment will affect the aggregate demand. The positive shock in investment will raise the level of aggregate demand and leads to economic growth. This increasing demand will increase the demand for goods and services. Technological advancements, purchasing large number of machines for production, government stimulus programmes will make positive shock in investment and also there is positive demand shock. On the other hand, earthquakes, rapid growth of population, terrorist attacks were leads to negative shocks and leads to falling production level and negative growth rate.

Rahul Sunny answered 1 year ago

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What is an investment shock and how can it positively or negatively impact the economy? is...

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