The land of Ur increases its capital stock.As a result,the long-run aggregate supply curve shifts ________ and so does the ________ curve.
A) rightward; aggregate demand
B) leftward; aggregate demand
C) rightward; short-run aggregate supply
D) leftward; short-run aggregate supply

Question

Quizplus · Accepted Answer

An increase in capital stock leads to a rightward shift of the long-run aggregate supply curve. This shift affects the short-run aggregate supply curve as well, as it serves as a foundation for determining potential output in the short run. Therefore, both the long-run and short-run aggregate supply curves shift rightward. However, the aggregate demand curve is not affected by changes in the capital stock, so option A and B are incorrect. Option D suggests a leftward shift of the short-run aggregate supply curve, which is not consistent with the scenario described.

The Land of Ur Increases Its Capital Stock