Which of the following would shift the long-run aggregate supply curve right?

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Question restatement: Which of the following would shift the long-run aggregate supply (LRAS) curve right?

Option 1: An increase in the capital stock, but not an increase in the price level. This is correct because LRAS shifts to the right when the economy’s productive capacity expands, such as through more capital stock, better technology, or a larger labor force. These are long-run determinants of potential output and push the LRAS outward.

Option 2: Neither an increase in the money supply nor an increase in the capital stock. This is incorrect because LRAS is not influenced by the money supply; it is influenced by real factors like capital, technology, and labor. If there were a capital stock increase, LRAS would shift right, regardless of money supply.

Option 3: An increase in the money supply, but not an increase in the capital stock. This is incorrect because money supply changes affect the aggregate-demand (AD) curve in the short run, typically influencing the price level and output temporarily, but they do not shift the LRAS, which depends on real productive capacity.

Option 4: Both an increase in the capital stock and an increase in the price level. While the capital stock increase would shift LRAS right, the accompanying price level increase is a nominal (price) change that does not itself shift the LRAS. In the long run, the price level can adjust, but LRAS is determined by real factors, so this combination does not correctly describe a rightward shift caused by real capacity growth alone.

In summary, only increases in real productive capacity (like capital stock) shift LRAS to the right, whereas changes in the price level or monetary conditions influence short-run outcomes or the AD curve, not the long-run capacity. Therefore, the statement in Option 1 accurately captures the LRAS shift mechanism.

2261 ECON 0110 SEC1400 Test 5

Which of the following would shift the long-run aggregate supply curve right?

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