Higher 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

Higher interest rates typically lead to a decrease in capital utilization because borrowing costs are higher, making it more expensive for businesses to finance capital expenditures. This decrease in capital utilization shifts the production function downward, as there is less capital input into the production process. Consequently, the Long-Run Aggregate Supply (LRAS) curve shifts leftward, indicating a decrease in the potential output of the economy.

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