Why does an increase in gross private domestic investment increase aggregate demand and vice versa?
I don't know if this was a concept in Keynesian economins, but my teacher told me that a lack of gross private domestic investment or investment expenditures will eventually lead to a Depression. Why is this? Her statement was right. GPDI was only 4% of the GDP in 1933.
I guess I mean exogenous.. now please elaborate. How and why does GPDI increase aggregate demand when it increases?
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Answer by Andrew K
This is Keynesian in a sense... it has to do with explaining the great depression as a shock in aggregate demand.
In terms of a model, are you referring to an exogenous or endogenous increase in private investment?
If investment increases exogenously, then, yes, it will lead to an increase in aggregate demand.
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