In the long-run equilibrium, an increase in the quantity of capital leads to
A) an increase in the equilibrium price level and an increase in equilibrium real GDP.
B) a decrease in the equilibrium price level and an increase in equilibrium real GDP.
C) a decrease in the equilibrium price level, but no change in equilibrium real GDP.
D) no change in the equilibrium price level, but an increase in equilibrium real GDP.

Question

Quizplus · Accepted Answer

An increase in the quantity of capital typically enhances productivity and expands the economy's capacity to produce goods and services, leading to an increase in equilibrium real GDP. As the supply of goods and services increases, prices tend to decrease, leading to a decrease in the equilibrium price level.

In the Long-Run Equilibrium, an Increase in the Quantity of Capital