When there is economic growth with rising living standards,
A) business investment increases both LAS and SAS.
B) business investment increases the quantity and quality of inputs.
C) increased employment in new factories increases income, so AD increases.
D) potential GDP is greater in the new long-run macroeconomic equilibrium.
E) all of the above are true.

Question

Quizplus · Accepted Answer

When there is economic growth with rising living standards, business investment tends to increase both the quantity and quality of inputs, leading to an increase in both long-run aggregate supply (LAS) and short-run aggregate supply (SAS), which is captured by choice A. Additionally, increased employment in new factories leads to an increase in income, which in turn leads to an increase in aggregate demand (AD), which is captured by choice C. The increase in both the SAS and AD helps the economy reach a new long-run macroeconomic equilibrium, where the potential GDP is greater than before, which is captured by choice D. Therefore, all of the above choices are true.

When There Is Economic Growth with Rising Living Standards