Suppose that the saving rate in Canada increases,and firms use the increased saving to invest.What will happen to long-run aggregate supply?
A)The LRAS will not shift, but the economy moves along the LRAS curve to a lower price level.
B)It will increase.
C)It will decrease.
D)The LRAS will not shift, but the economy moves along the LRAS curve to a higher price level.

Question

Quizplus · Accepted Answer

With increased savings, firms have more funds to invest in capital goods, leading to increased productivity and potential output. This increase in potential output is reflected by a rightward shift in the LRAS curve. Thus, long-run aggregate supply will increase.

Suppose That the Saving Rate in Canada Increases,and Firms Use