Question

suppose that the production function for an economy is graphed with real gdp on the vertical axis and labor on the horizontal axis. when the level of capital in this economy rises, it causes _______ which shifts the lras curve _____ resulting in _______.

a movement down along a given production function; leftward; a shrinking economy
the production function to shift downward; leftward; a shrinking economy
the production function to shift upward; rightward; economic growth
a movement up along a given production function; rightward; economic growth

Explanation:

Analyze the production function shift

Using the Production Function Shifts knowledge point
An economy's aggregate production function relates Real GDP (\(Y\)) to inputs of labor (\(L\)) and capital (\(K\)), typically written as \(Y = f(L, K)\). When graphed with Real GDP on the vertical axis and labor on the horizontal axis, the curve represents the relationship for a fixed level of capital. An increase in the level of capital (\(K\)) increases the productivity of labor, causing the entire production function curve to shift upward.

Determine the effect on LRAS and economic growth

Using the LRAS Shifts knowledge point
An upward shift in the production function means that more Real GDP can be produced at any given level of labor. This increase in productive capacity shifts the Long-Run Aggregate Supply (LRAS) curve rightward, which represents long-run economic growth.

Evaluate the given options

Combining these two effects, when the level of capital in this economy rises, it causes:

1. The production function to shift upward;
2. The LRAS curve to shift rightward;
3. Resulting in economic growth.

This matches the third option.

Answer:

• a movement down along a given production function; leftward; a shrinking economy
• the production function to shift downward; leftward; a shrinking economy
• the production function to shift upward; rightward; economic growth (Correct answer)
• a movement up along a given production function; rightward; economic growth