Which of the following would shift the FE line to the right?
A)An adverse supply shock
B)A decrease in labor 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 shifts the FE line to the right because it represents an increase in the economy's productive capacity. This can allow for higher levels of output and income without causing inflation. An adverse supply shock or decrease in labor supply would shift the FE line to the left, indicating lower potential output and higher inflationary pressures. An increase in the future marginal productivity of capital may shift the FE line to the right in the long run, but in the short run, it may have little effect on the position of the FE line.

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