How Does Corporate Investment Affect Aggregate Supply?

Even if your business is small, it is still helpful to understand certain relationships in macroeconomics, which is a field that studies the dynamics of a nation's overall economy. Understanding macroeconomics allows your business to make better predictions about its future finances. One important relationship in macroeconomics that may affect your business's future involves corporate investment and aggregate supply.

Corporate Investment

A corporate investment is an investment made by a business instead of a government or individual. A company may invest money back into its own business, or it may invest in other securities. Because small businesses don't usually have stock, they typically make external investments. When a business invests a portion of its profits into its own stock, working capital increases. Likewise, the returns on external corporate investments stimulate the company's growth and productivity.

Aggregate Supply

Aggregate supply is the measure of supply across an entire nation. To evaluate aggregate supply, analysts consider the aggregate supply curve, which shows the relationship between aggregate supply and the nation's price level. There are two versions of this curve: short run and long run. The short-run curve depicts aggregate supply from the time prices increase to the point at which wages increase to match them. The long-run curve, on the other hand, depicts aggregate supply after the point of wage increase. In the short run, aggregate supply increases as price increases. However, aggregate supply remains constant in the long run.


Though the shape of both the long-run and short-run aggregate supply curves will remain the same, changes in corporate investment can shift the entire curve to the left or right. When corporate investment increases, both aggregate supply curves shift to the right. On the other hand, when corporate investment decreases, both aggregate supply curves shift to the left. A shift to the right indicates a higher aggregate supply for every price level, while a shift to the left indicates a lower aggregate supply for every price level.

Other Factors

Several other factors also affect the aggregate supply curves. When the cost of production, interest rates, taxation and foreign supply increase, the aggregate supply curves shift to the left. However, when productivity, credit availability and profit increase, the aggregate supply curves shift to the right.