An increase in the amount of physical capital will cause
A) an increase in both aggregate demand and real GDP, but have no effect on the price level.
B) aggregate demand and aggregate supply to increase by the same amounts, causing real GDP to increase and the price level to remain constant.
C) an increase in both aggregate supply and real GDP, but have no effect on the price level.
D) an increase in both aggregate supply and real GDP and a reduction in the price level.

Question

Quizplus · Accepted Answer

An increase in the amount of physical capital increases aggregate supply because more goods and services can be produced with more capital. This increase in aggregate supply leads to an increase in real GDP as more goods and services are available. Additionally, the increase in supply, with demand remaining constant, puts downward pressure on prices, leading to a reduction in the price level.

An Increase in the Amount of Physical Capital Will Cause