Which of the following shifts both the short-run and the long-run aggregate supply right?
A) an increase in the natural rate of unemployment
B) an increase in the expected price level
C) an increase in the capital stock
D) an increase in money supply

Question

Quizplus · Accepted Answer

An increase in the capital stock shifts both the short-run and the long-run aggregate supply right. This is because an increase in the capital stock increases the economy's productivity, which lowers costs and increases the potential output of goods and services.

Choice A is incorrect because an increase in the natural rate of unemployment shifts both the short-run and the long-run aggregate supply left, as it increases the costs of production.

Choice B is incorrect because an increase in the expected price level only shifts the short-run aggregate supply left, as firms will produce more in the short-run due to higher prices but in the long-run prices and wages will adjust and return to their original equilibrium.

Choice D is incorrect because an increase in the money supply only shifts the short-run aggregate supply right, as it leads to higher prices and output in the short-run but not in the long-run as prices will adjust.

Which of the Following Shifts Both the Short-Run and the Long-Run