Question

if the marginal product of capital decreases, what happens to the is curve? group of answer choices it remains the same. it shifts outward. there is movement along the curve. it shifts inward.

Answer 1

A decrease in the marginal product of capital results in an inward shift of the IS curve due to lower investment and reduced aggregate demand at any given interest rate.

Step-by-step explanation:

When the marginal product of capital decreases, this is typically indicative of a reduction in the efficiency of capital inputs, leading to a decrease in output. In terms of macroeconomic models, specifically the IS curve, which represents the relationship between interest rates and the level of income or output that brings the goods market to equilibrium, a decrease in the marginal product of capital will shift the IS curve inward. This is because the reduction in the productivity of capital will likely result in lower investment for any given interest rate, thus reducing aggregate demand and shifting the IS curve to the left.