In general,an increase in productive capacity
A) leaves the aggregate demand and supply curves unchanged.
B) causes the aggregate supply curve to become vertical.
C) causes the aggregate demand curve to become horizontal.
D) shifts the aggregate demand curve to the left and pushes up price levels.
E) shifts the aggregate supply curve to the right and increases real output.

Question

Quizplus · Accepted Answer

An increase in productive capacity means there is an increase in the availability of goods and services in the economy, which in turn allows for a greater output for a given level of inputs. This leads to a shift in the aggregate supply curve to the right, which results in an increase in real output and a decrease in price levels. Therefore, the correct answer is E.

In General,an Increase in Productive Capacity