Chapter 40, Problem 7MCQ

To determine

The correct option for a shift of the long-run aggregate supply curve to the left.

Answer to Problem 7MCQ

Option b is correct.

Explanation of Solution

Explanation for the correct option:

b.

Using the aggregate supply curve, the LRAS curve will shift leftward because if there is a decrease in the aggregate supply which is as shown below:

  

Therefore, option b is correct.

Explanation for incorrect options:

a.

An increase in aggregate demand does not shift the LRAS curve toward the left. Therefore, option a is incorrect.

c.

If the economy’s capital stock is decreased, it is not certainly decreasing the long-run supply causing LARS to shift leftward. Therefore, option c is an incorrect answer.

d.

Investment in infrastructure may increase real GDP. But it will not shift the supply curve toward the left. Therefore, option d is incorrect.

e.

Since all options are not correct. Therefore, option e is incorrect.

Economics Concept Introduction

Long-run aggregate supply curve: As per the long-run aggregate supply curve, the aggregate output supplied remains unchanged even if the aggregate price level is increased or decreased.