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.

Question

Quizplus · Accepted Answer

A reduction in machinery and capital equipment indicates a decrease in a country's production capacity. This will result in a decrease in the long-run aggregate supply curve since the economy can produce less due to the reduction in capital equipment. Therefore, Option B is correct. Options A, C, and D are incorrect as they suggest a shift or movement of the long-run aggregate supply curve in the opposite direction.

Suppose a Developing Country Experiences a Reduction in Machinery and Capital