Final answer:
True, an increase in business confidence can lead to a rise in investment spending because businesses anticipate future profitability and market growth, prompting them to invest more in their operations. This relationship between business confidence and investment spending is indicative of broader economic trends.
Step-by-step explanation:
True: If businesses are more confident about the economy, we can indeed expect investment spending to increase. This is because a higher degree of business confidence typically encourages firms to make new investments, driven by their expectations of future profits and growth in the market. For instance, in the late 1990s with a robust U.S. economy, investment surged as confidence soared. Conversely, during a recession, such as the one that began in 2001, this confidence and consequently investment spending significantly declined.
When consumer and business confidence is high, Consumption and investment spending tend to rise, as firms believe the future payoff will justify the current outlay. This effect on aggregate demand illustrates the critical role that expectations and confidence play in economic decision-making.
However, confidence levels can be influenced by various factors, some of which may not directly connect to current economic conditions. Examples include geopolitical tensions, election results, or statements by influential figures. These can shift economic confidence and impact consumption, investment, and thus the aggregate demand.