Question

A rapid increase in successful research and development projects for the nation will most likely result in which of the following changes in the short-run and long-run aggregate supply curves and production possibilities curve (PPC), respectively? Shift to the left; Shift to the left; Shift inward O Shift to the left; No change; No change O Shift to the right; No change; Shift outward O Shift to the right; Shift to the right; Shift outward

Answer 1

Option D is correct - Shift to the right; shift to the right, shift outward

The aggregate supply curve shows the production level or the productive capacity or the real GDP of the country. Short-run aggregate supply curve is upward sloping and it shows a positive relationship between price level and real GDP of the country. In short-run some factors of production are assumed to be fixed that cannot be changed in the short run. The long-run aggregate supply curve is vertical or perfeclty inelastic. It shows that in the long run, the output level remains the same no matter the change in the price level.

Factors like change in productive capacity of the factors of production, level of technology and research and development that boosts the economic activity affect the short run and long run aggregate supply curve.

Thus, a rapid increase in successful reasearch and development will shift both the short run and long run aggrgeate supply curve to the right, showing an increase in them.

Production possibility curve is a curve that shows different combiantion of two goods that a country can produce given the resources it has. Rise in technology or successful improvement in research and development, boosts the economic growth in a country leading to greater productive capacity with the same resources and thus it shifts the production possibility curve to the right or outward.