When the quantity of capital increases, then the
A) SAS curve shifts rightward and the LAS curve shifts rightward.
B) SAS curve shifts rightward and the LAS curve does not shift.
C) SAS curve shifts rightward and the LAS curve does shifts leftward.
D) LAS curve shifts rightward and the SAS curve does not shift.

Question

Quizplus · Accepted Answer

When the quantity of capital increases, it leads to an increase in productivity and output. As a result, the SAS (Short-Run Aggregate Supply) curve shifts rightward indicating an increase in the quantity of output supplied at each price level. As the increase in productivity and output leads to a decrease in costs, the LAS (Long-Run Aggregate Supply) curve also shifts rightward indicating an increase in the potential output level. Therefore, option A is the correct choice.

When the Quantity of Capital Increases, Then the