What will happen to the UK economy if investment increases?

First we will define the key term, investment, as private companies purchasing capital- where capital is goods used for the production of goods in the future, as opposed to consumption today; for example, a tractor. When a question asks about the 'impact on the UK economy', we should think about the main economic objectives: GDP growth, low unemployment and stable prices (the inflation target of 2%). We should also think about the short run and the long run, but lets begin with demand and supply side. Impact on the demand side:Investment is a component of aggregate demand, therefore, an increase in investment will boost AD, shifting the downwards sloping curve to the right. AD = C + I + G + (X-M)A boost in investment will also result in a positive multiplier effect, defined as an increase in AD greater than proportionate to the increase in the component in question. The mechanism for this is as such: increase in investment, more houses built, more builders employed, wages go to more builders, those builders buy more coffees, those coffee shops have greater incomes, coffee shop employees invest or spend this surplus, the cycle continues. On the supply side, investment should increase the quality and quantity of factors of production. Therefore, the PPF shifts outwards. The production possibility frontier represents the combinations of consumer and capital available to an economy. A shift outwards shows that the economy's long run aggregate supply has increased. There is no effect on SRAS given the time lag associated with investment. SRAS only shifts when there is a change to the price of inputs or productivity. In terms of the economic objectives, ouput (ie. GDP) has increased. Coupled with this, unemployment will too have decreased. The impact on inflation is dependent on the school of thought being followed, and whether there was initially spare capacity in the economy. Keynesian LRAS curve (diagram)Classical LRAS curve (diagram), inflation would depend on the relative shift of AD and LRAS, which depends on the success/ efficiency of the investment.