What is the main effect of an increase in the capital stock?
A) a rightward shift of the long-run aggregate supply curve
B) a leftward shift of the long-run aggregate supply curve
C) a rightward shift of the aggregate demand curve
D) a leftward shift of the aggregate demand curve

Question

What is the main effect of an increase in the capital stock?  
A) a rightward shift of the long-run aggregate supply curve 
B) a leftward shift of the long-run aggregate supply curve 
C) a rightward shift of the aggregate demand curve 
D) a leftward shift of the aggregate demand curve

Quizplus · Accepted Answer

An increase in the capital stock means that the economy has more machinery, equipment, and infrastructure to produce goods and services. This leads to an increase in productivity, which results in lower production costs and an increase in the quantity of goods and services. This increase in production capacity shifts the long-run aggregate supply (LRAS) curve to the right, allowing the economy to produce more goods and services at any given price level. The LRAS curve shifts because the increase in the capital stock leads to an increase in potential output, which is the maximum amount of output that an economy can produce using all its resources, including capital, labor, and technology.

What Is the Main Effect of an Increase in the Capital