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Multiple Choice Question

When firms realize that their excess capacity is shrinking, investment spending Blank______.
Multiple choice question.

and aggregate demand (AD) will increase

will increase, but aggregate demand (AD) will decrease

and aggregate demand (AD) will decrease

will decrease, but aggregate demand (AD) will increase

1 answer

The correct answer is: and aggregate demand (AD) will increase.

When firms realize that their excess capacity is shrinking, they are likely to invest more in order to meet expected future demand, which contributes to an increase in aggregate demand.