When the production possibilities curve shifts outward,
A) the long-run aggregate supply curve shifts to the left.
B) the long-run aggregate supply curve is unchanged.
C) the price level rises in the long run.
D) the long-run aggregate supply curve shifts to the right.

Question

Quizplus · Accepted Answer

When the production possibilities curve shifts outward, it means that the economy is able to produce more goods and services with the same resources. This will lead to an increase in potential output in the long run, which causes the long-run aggregate supply curve to shift to the right. As a result, the price level may decrease or remain unchanged, but it would not rise.

When the Production Possibilities Curve Shifts Outward