Macro Unit 3, Question 20- Shifting LRAS and Economic Growth

The video tutorial explains how an increase in capital stock, such as machinery and tools, leads to a rise in aggregate demand due to lower interest rates and increased investment. This results in more resources for firms, causing both short-run and long-run supply curves to shift right, indicating higher production capacity. The tutorial connects these shifts to the concept of economic growth, similar to the outward shift of the production possibilities curve, highlighting the role of increased resource quantity and quality in achieving previously unattainable production levels.

What is one effect of a decrease in interest rates on the economy?

• Decrease in aggregate demand

• Reduction in machinery

• Increase in investment

• Decrease in capital stock

How does an increase in resources affect the short-run aggregate supply curve?

• Makes it vertical

• Shifts it to the left

• Keeps it unchanged

• Shifts it to the right

What happens to the long-run aggregate supply when there is more capital stock?

• It shifts to the left

• It remains the same

• It becomes horizontal

• It shifts to the right

What does the outward shift of the production possibilities curve indicate?

• Reduction in resources

• Economic decline

• Economic growth

• Decrease in productivity

Which factor contributes to shifting the production possibilities curve outward?

• Decrease in capital stock

• Reduction in productivity

• Increase in resource quantity

• Decrease in resource quality