An increase in capital formation that expands long-run aggregate supply will
A) increase output and decrease prices.
B) increase both output and prices.
C) decrease both output and prices.
D) decrease output and increase prices.

Question

Quizplus · Accepted Answer

An increase in capital formation will lead to an increase in productivity and efficiency, resulting in an increase in long-run aggregate supply. This will lead to an increase in output, while prices will decrease due to the increased supply of goods and services.

An Increase in Capital Formation That Expands Long-Run Aggregate Supply