What effect does an increase in resources have on the long-run aggregate supply curve?

• A. It shifts it inward
• B. It has no effect
• C. It shifts it outward
• D. It results in a vertical shift only

Answer: (C)

An increase in resources, such as labor, capital, or natural resources, enhances an economy's productive capacity. This means that with more resources available, firms can increase their output more effectively, leading to greater overall economic productivity. As a result, the long-run aggregate supply (LRAS) curve shifts outward, reflecting an increase in potential output at every price level.

The outward shift of the LRAS curve signifies that the economy can sustainably produce more goods and services without raising the price level, indicating growth in the economy's potential. This increase can arise from various factors, such as improved technology, investment in infrastructure, education and skills development of the labor force, or an influx of natural resources, each contributing to a higher capacity for production in the long run.

A shift inward would indicate a decrease in productive capacity, which would not correspond with an increase in resources. Similarly, stating that there is no effect would disregard the fundamental relationship between resource availability and economic capacity. Lastly, a vertical shift does not accurately reflect the dynamic changes in resource availability; instead, the LRAS curve shifts outward as a response to increased resources and productivity enhancements.