Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
LRAS will shift to the right due to enhanced productivity
B
LRAS will shift to the left because of increased costs
C
LRAS will remain unchanged as investment does not affect supply
D
LRAS will fluctuate in the short run but stabilize later
Understanding the Answer
Let's break down why this is correct
Answer
When businesses invest more in new technology and equipment, they usually become more efficient. This means they can produce more goods and services using the same amount of resources. As a result, the overall capacity of the economy to produce increases, which shifts the long-run aggregate supply (LRAS) to the right. For example, if a factory buys a new machine that works faster and uses less energy, it can produce more products at a lower cost. This increase in efficiency and production capability helps the economy grow in the long run.
Detailed Explanation
When businesses invest in new technology, they can produce more goods efficiently. Other options are incorrect because Some might think that more investment leads to higher costs; It's a common mistake to think that investment doesn't change supply.
Key Concepts
Investment Spending
Long-Run Aggregate Supply
Capital Formation
Topic
Investment and Long-Run Supply
Difficulty
easy level question
Cognitive Level
understand
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