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

Question

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

Quizplus · Accepted Answer

A decrease in the stock of capital would lead to a decrease in productive capacity, causing a leftward shift in the long-run aggregate supply (LRAS) curve. This is because the LRAS curve represents the potential output of an economy given its resources, including the stock of capital. A decrease in the stock of capital would reduce this potential output, leading to a leftward shift in the LRAS curve. This would result in higher prices and lower output in the long run. Conversely, a rightward shift in the aggregate demand (AD) or short-run aggregate supply (SRAS) curves would indicate an increase in output and prices, which is not the case with a decrease in the stock of capital.

What Is the Main Effect of a Decrease in the Stock