The long-run aggregate supply curve will shift outward to the right when
A) there is economic growth.
B) the price level decreases.
C) government spending increases.
D) the amount of labor decreases.

Question

Quizplus · Accepted Answer

Economic growth leads to an increase in productivity, which includes improvements in technology, infrastructure, and education, resulting in an increase in the potential output of the economy. As a result, the long-run aggregate supply curve shifts outward to the right. Choice B is incorrect because the movement along the long-run aggregate supply curve is caused by changes in price levels, but shifts are caused by underlying factors affecting potential output. Choice C is incorrect because government spending does not necessarily increase potential output, and it is a short-run factor. Choice D is incorrect because a decrease in labor supply would shift the long-run aggregate supply curve inward to the left.

The Long-Run Aggregate Supply Curve Will Shift Outward to the Right