Which of the following would shift the long-run aggregate supply (LRAS) curve to the right?

• A. A decrease in consumer spending
• B. A rise in the general price level
• C. An increase in the economy's capital stock
• D. An increase in government transfer payments

Answer: (C)

Verified step by step guidance

1. Step 1: Understand what the Long-Run Aggregate Supply (LRAS) curve represents. The LRAS curve shows the total output an economy can produce when all resources are fully employed, reflecting the economy's potential output or productive capacity.
2. Step 2: Recognize that the LRAS curve is vertical because, in the long run, output is determined by factors like technology, capital stock, labor, and natural resources, not by the price level.
3. Step 3: Analyze each option to see if it affects the economy's productive capacity: a decrease in consumer spending affects demand, not supply; a rise in the general price level does not change productive capacity; an increase in government transfer payments affects demand, not supply.
4. Step 4: Identify that an increase in the economy's capital stock means more machinery, tools, and infrastructure are available, which directly increases the economy's productive capacity and shifts the LRAS curve to the right.
5. Step 5: Conclude that only factors that improve the economy's ability to produce goods and services, such as increases in capital stock, labor force, or technology, will shift the LRAS curve to the right.