In recent years, investment in Japan has increased by about 13 percent from one year to the next. As a result, we would expect
A) only Japan's long- run aggregate supply curve to shift rightward.
B) rightward shifts in both Japan's short- run aggregate supply and long- run aggregate supply curves.
C) a leftward shift in Japan's aggregate demand curve.
D) a movement up along Japan's short- run aggregate supply curve.

Question

Quizplus · Accepted Answer

The increase in investment would lead to an increase in Japan's productive capacity, causing both the short-run and long-run aggregate supply curves to shift rightward. There is no indication that the aggregate demand curve would shift, so option C is incorrect. Option A is incorrect because only the long-run aggregate supply curve would not be affected by the increase in investment. Option D is incorrect because there is no movement along the short-run aggregate supply curve since investment is not a factor that affects the price level in the short run.

In Recent Years, Investment in Japan Has Increased by About