Lower interest rates cause a(n)____________in capital utilization,which shifts the production function __________and thereby shifts the LRAS curve ______________.
A) decrease; upward; rightward
B) decrease; downward; leftward
C) increase; upward; rightward
D) increase; downward; leftward
E) increase; downward; rightward

Question

Quizplus · Accepted Answer

Lower interest rates make it easier and cheaper for firms to borrow money to invest in capital projects, which increases capital utilization. This shift in production function towards the right leads to an increase in potential output, which shifts the LRAS curve rightward. Therefore, option C is the correct answer.

Lower Interest Rates Cause A(n)____________in Capital Utilization,which Shifts the Production