The land of Ur increases its capital stock. As a result, the long-run aggregate supply curve shifts___________ and so does the ___________curve.
A) rightward; short-run aggregate supply
B) rightward; aggregate demand
C) leftward; short-run aggregate supply
D) leftward; aggregate demand

Question

Quizplus · Accepted Answer

An increase in capital stock will lead to an increase in productivity and potential output in the long run. This will cause the long-run aggregate supply curve to shift rightward. However, it will not immediately affect the overall demand in the economy, so the short-run aggregate supply curve will not shift, and neither will the aggregate demand curve.

The Land of Ur Increases Its Capital Stock