What effect will the combination of a decrease in the capital stock and increasingly costly government regulations have on LRAS?
A)It will shift LRAS to the left.
B)It will shift LRAS to the right.
C)It will leave LRAS unchanged.
D)It will have an indeterminate effect on LRAS.

Question

Quizplus · Accepted Answer

A decrease in the capital stock means there is less physical capital available, which will lead to a decrease in productivity and potential output. Additionally, increasingly costly government regulations will increase the cost of doing business, which can also decrease overall productivity. Both of these factors will cause a leftward shift in the LRAS curve, indicating a decrease in potential output.

What Effect Will the Combination of a Decrease in the Capital