Suppose a developing country experiences a reduction in machinery and capital equipment as foreign entrepreneurs decrease the amount of investment in the economy.As a result,
A)the long-run aggregate supply curve will shift to the right.
B)the long-run aggregate supply curve will shift to the left.
C)the economy will move up along the long-run aggregate supply curve.
D)the economy will move down along the long-run aggregate supply curve.
E)long-run aggregate supply will become more sensitive to price.

Question

Quizplus · Accepted Answer

A reduction in machinery and capital equipment as a result of decreased foreign investment in the economy will lead to a decrease in the economy's productive capacity, which will cause a leftward shift in the long-run aggregate supply curve. This is because the economy will have a reduced ability to produce goods and services, which will lead to higher costs of production and lower levels of output.

Suppose a Developing Country Experiences a Reduction in Machinery and Capital