The main effect of an increase in capital stock is a(n) _____
A) rightward shift of the long-run aggregate supply curve.
B) rightward shift of the aggregate demand curve.
C) leftward shift of the long-run aggregate supply curve.
D) leftward shift of the aggregate demand curve.
E) increase in the price and output levels.

Question

Quizplus · Accepted Answer

An increase in capital stock leads to an increase in potential output in the long run as the economy becomes more productive. This leads to a rightward shift of the long-run aggregate supply curve. This results in higher output levels at the same or lower price level. Hence, option A is the correct answer.

The Main Effect of an Increase in Capital Stock Is