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How will an increase in investment that promotes long-run growth change the short-run aggregate supply curve (SRAS), the long-run aggregate supply curve (LRAS), and the production possibilities curve (PPC)?Elimination ToolSelect one answerASRAS Decrease, LRAS Decrease, PPC DecreaseBSRAS Decrease, LRAS Decrease, PPC IncreaseCSRAS Decrease, LRAS Increase, PPC IncreaseDSRAS Increase, LRAS Increase, PPC IncreaseESRAS Increase, LRAS Increase, PPC Decrease

Question

How will an increase in investment that promotes long-run growth change the short-run aggregate supply curve (SRAS), the long-run aggregate supply curve (LRAS), and the production possibilities curve (PPC)?Elimination ToolSelect one answerASRAS Decrease, LRAS Decrease, PPC DecreaseBSRAS Decrease, LRAS Decrease, PPC IncreaseCSRAS Decrease, LRAS Increase, PPC IncreaseDSRAS Increase, LRAS Increase, PPC IncreaseESRAS Increase, LRAS Increase, PPC Decrease

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Solution

The answer is D: SRAS Increase, LRAS Increase, PPC Increase.

Here's why:

  1. Short-Run Aggregate Supply (SRAS): An increase in investment can lead to an increase in the SRAS. This is because investment often leads to an increase in productive capacity, such as more machinery or technology, which allows more goods and services to be produced in the short run.

  2. Long-Run Aggregate Supply (LRAS): Similarly, an increase in investment can also lead to an increase in the LRAS. This is because investment can lead to an increase in the economy's potential output over the long run. For example, investment in education can increase human capital, leading to higher productivity and thus a higher potential output.

  3. Production Possibilities Curve (PPC): An increase in investment can lead to an outward shift (increase) in the PPC. This is because the PPC represents the maximum combination of goods and services an economy can produce given its resources. If investment increases, this can lead to an increase in resources (such as capital or technology), allowing more goods and services to be produced.

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