Which of the following would shift the FE line to the right?
A)an adverse supply shock
B)a decrease in labour supply
C)an increase in the capital stock
D)an increase in the future marginal productivity of capital

Question

Quizplus · Accepted Answer

An increase in the capital stock would increase the potential output (Y*) of the economy, shifting the FE line to the right. An adverse supply shock (A) or a decrease in labor supply (B) would decrease potential output and shift the FE line to the left. An increase in the future marginal productivity of capital (D) could lead to an increase in investment and potential output, but it would not necessarily shift the FE line in itself.

Which of the Following Would Shift the FE Line to the Right