When excess capacity dwindles, investment spending and aggregate demand will generally increase.
As firms reach their capacity limits, they may need to invest in new capital or expand their operations to meet rising demand. This increase in investment spending can lead to a higher level of aggregate demand in the economy, as businesses purchase more goods and services to support their growth. Additionally, as firms invest and expand, it can create more jobs and increase consumer spending, further boosting aggregate demand.
So the relationship can be summarized as: dwindling excess capacity leads to increased investment spending, which in turn contributes to rising aggregate demand.