Investment in human capital improves aggregate supply and the long-run aggregate supply line shifts to the right. Group of answer choices True False
The correct answer and explanation is:
Correct Answer: True
Investment in human capital does improve aggregate supply, and it causes the long-run aggregate supply (LRAS) curve to shift to the right.
Human capital refers to the skills, education, experience, and health of the labor force. When an economy invests in human capital through better education systems, job training programs, healthcare, and other means of developing the workforce, the productivity of labor improves. This increased productivity enables the economy to produce more output using the same amount of physical resources, such as land and machinery.
The long-run aggregate supply curve represents the total quantity of goods and services that an economy can produce when it is using all its resources efficiently at full employment. In the long run, changes in the price level do not affect the level of output. Instead, long-term output depends on factors such as technology, labor productivity, capital stock, and natural resources. Among these, human capital plays a central role because a more skilled and educated workforce can use technology more effectively and contribute to innovation and efficiency.
When human capital improves, businesses benefit from a more competent and adaptable workforce. This leads to higher production capacity, increased efficiency, and more innovation, all of which support long-term economic growth. As a result, the LRAS curve shifts to the right, indicating that the economy can now produce more at the same price level. This shift also signals a rise in potential GDP.
In summary, investment in human capital is a vital factor that enhances the productive capacity of the economy. By improving the quality of the labor force, the economy becomes more efficient and capable of sustaining higher levels of output in the long run. Therefore, the statement is true.