Question

Lower interest rates cause a(n) ____________in capital utilization, which shifts the production function __________and thereby shifts the LRAS curve ______________.

Answer 1

The correct answer here to the first fill in the blank is Increase and for the second one it is Upward and for the third one it is Rightwards.

Step-by-step explanation:

If there is any change in the interest rate or tax treatment , there will be an impact on the capital utilization , which will then help in determining the positions of the LRAS (long run aggregate supply curve ) curve. So if there is an decrease in the interest rate , then it will cause increase in the capital utilization, which will then shift the production to upwards and there by shift the LRAS curve rightwards. LRAS curve shifts to rightwards when in the long run , increase in investment ( which is due to lower interest rate ) causes the economy's capacity to produce, as the production cost is reduced.