Final answer:
Equilibrium output is the level where aggregate demand equals aggregate supply. A rise in investment will typically lead to an increase in equilibrium output, assuming other factors remain unchanged. Without additional economic data, the exact new equilibrium output cannot be calculated.
Step-by-step explanation:
To calculate the equilibrium output after the surge in business confidence that increased investment to 500, we apply the fundamental concept that equilibrium in an economy occurs where aggregate demand equals aggregate supply. Given that the investment rise is the only change specified, we assume other components of aggregate demand, such as consumption, government spending, and net exports, remain constant.
Let's denote:
- Y as the equilibrium level of output,
- C as consumption,
- I as investment,
- G as government spending,
- X as exports,
- M as imports,
- A and b as constants in the consumption function (C = A + bY),
Aggregate demand (AD) is the sum C + I + G + (X - M), and to maintain equilibrium, AD must equal the total output Y. Using the new investment figure, we revise the AD equation: AD = A + bY + 500 + G + (X - M). To find Y, we would typically solve AD = Y for Y. However, since the question doesn't provide all the variables needed for a full calculation, we can't determine the exact equilibrium output Y without this information.
The surge in investment by 500, presumably in millions or some other unit, impacts the equilibrium level of output. An increase in investment will directly raise aggregate demand and therefore should increase the equilibrium output if all other factors are constant. If we had the complete consumption function and other aggregate demand component figures, we could solve for the new equilibrium output, Y, by setting AD equal to Y and solving for Y.