Final answer:
In the short run, an increase in investment with no government intervention leads to an increase in real GDP. Over the long run, the economy adjusts and the real GDP may stabilize at a new, higher level due to increased productivity and capacity.
Step-by-step explanation:
If there has been an increase in investment with no government intervention, real GDP will increase in the short run, and adjust to a new equilibrium in the long run. In the short run, the boost in investment is likely to raise aggregate demand, which would lead to an increase in output and possibly a higher employment level, as the economy moves towards its potential GDP.
In the long run, the economy adjusts as factors such as prices and wages become more flexible. The increase in investment can lead to higher productivity and an expansion of the productive capacity of the economy. This means that the aggregate supply would shift to the right, representing an increase in potential GDP. Consequently, the economy could experience sustained growth without causing inflationary pressures. Ideally, this situation reflects an improving economy, leading to a better budget balance, more investment, and a nuanced effect on the trade balance depending on whether the increase in the trade deficit is counterbalanced by other factors.