Suppose that Congress passes an investment tax credit that is sustained and eventually leads to a...

Suppose that Congress passes an investment tax credit that is sustained and eventually leads to a higher level of capital. At first ____________________, and over a longer period of time, the long-run aggregate supply curve will _____________.

Group of answer choices:

A) only the long-run aggregate supply curve shifts and it shifts to the right, the long-run aggregate supply curve will shift to right a bit more

B) only the aggregate demand curve changes and it shifts to the left, remain

C) only the long-run aggregate supply curve shifts and it shifts to the right, the long-run aggregate supply curve will return to its original position

D) only the aggregate demand curve changes and it shifts to the right, also shift to the right

Expert Solution

Answer - Option C

Only the supply curve shifts and it shifts to its right, the long run aggregate supply curve will return to its original position.

In long run , the economy is self adjusting and comes back to original position. Capital stock improvement will not lead to change in AD. Hence Option C will be correct

Rahul Sunny answered 2 years ago

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