What effect does an increase in physical capital have on short-run aggregate supply?

An increase in physical capital affects short-run aggregate supply by increasing it. When there is more physical capital available—such as machinery, tools, and infrastructure—firms are generally able to produce more goods and services efficiently. This increase in productivity allows for a higher output level at any given price level, which shifts the short-run aggregate supply curve to the right.

The availability of additional capital resources means that companies can more effectively utilize their labor and existing resources, leading to enhanced production capabilities. This increase in output in response to the same levels of demand drives down costs per unit and, in many cases, can lead to a reduction in prices, thereby promoting economic growth.

In contrast, options suggesting a decrease in short-run aggregate supply or a leftward shift in the aggregate supply curve are not aligned with the economic understanding of how physical capital enhances productivity and efficiency in production. The option that posits no effect also overlooks the significant role that increased capital plays in production capacity. Therefore, the assertion that an increase in physical capital results in an increase in short-run aggregate supply accurately reflects the fundamental principles of economic productivity and capacity utilization.