Association of Chartered Certified Accountants (ACCA) Certification Practice Test

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Investment levels in an economy impact what aspect primarily?

  1. National savings

  2. Unemployment rates

  3. Aggregate demand

  4. Exchange rates

The correct answer is: Aggregate demand

Investment levels in an economy primarily impact aggregate demand. This is because investment is one of the components of aggregate demand, which consists of consumption, investment, government spending, and net exports. When investment levels increase, businesses are spending more on capital goods, which boosts economic activity and leads to higher overall demand for goods and services. Increased investment can drive growth in various sectors, improve productivity, and create jobs, all of which can further enhance consumer confidence and consumption. Higher aggregate demand can lead to increased production as businesses strive to meet the growing demand, which can also influence employment levels over time. The other aspects mentioned—national savings, unemployment rates, and exchange rates—can be affected by investment levels, but the direct and immediate impact on the economy is through aggregate demand. For example, while higher investment can lead to greater economic growth, which might eventually lower unemployment rates, this is a secondary effect rather than the primary impact.