What impact will an increase in the capital stock have on GDP and the price level?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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The most likely impact of an increase in capital stock will be an increase in GDP and a decrease in the price level.  This is because an increase in the capital stock will result in an increase in aggregate supply.

When an economy gains more in the way of capital, its aggregate supply curve shifts to the right.  This is because the economy can now produce more than it could before because it has things like more machines and more in the way of human resources.  When the supply curve shifts to the right, all other things being equal, we get an increase in GDP accompanied by a decrease in the price level.

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