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Chapter 24: Problem 2

What variables cause the long-run aggregate supply curve to shift? For each variable, identify whether an increase in that variable will cause the long- run aggregate supply curve to shift to the right or to the left.

Short Answer

Expert verified
The long-run aggregate supply curve can be influenced by changes in labor, capital, and technology. Increases in any of these variables generally cause the curve to shift to the right, indicating increased potential output or productivity.

Step by step solution

01

Identify variables that affect the long-run aggregate supply curve.

There are three main categories of variables that affect the long-run aggregate supply curve: changes in labor, capital, and technology. Labor typically refers to the size and skills of the workforce. Capital refers to the quantity and quality of equipment, buildings, or other facilities. Technology refers to the level of technical knowledge and skills that can be applied to improve production efficiency.
02

Understand how an increase in each variable affects the long-run aggregate supply curve.

An increase in labor, whether through a larger workforce or a more skilled one, would typically shift the long-run aggregate supply curve to the right as more output can be produced. Similarly, an increase in capital, whether through more or better quality equipment or facilities, also leads to a rightward shift in the long-run aggregate supply curve. Lastly, improvements in technology also shift the long-run aggregate supply curve to the right as higher levels of technical knowledge allow for more efficient production.
03

Synthesize understanding of how variables affect the long-run aggregate supply curve.

In summary, increases in the three identified variables (labor, capital, technology) all lead to a rightward shift in the long-run aggregate supply curve, signifying increased potential output or productivity.

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Most popular questions from this chapter

What are menu costs? If menu costs were eliminated. would the short-run aggregate supply curve be a vertical line? Briefly explain.

From August 2009 to May \(2017,\) the Standard \(\&\) Poor's Index of 500 stock prices increased by more than 135 percent, while the consumer price index increased by less than 15 percent. Briefly explain what effect, if any, these changes had on the aggregate demand curve.

In 2017, an editorial on bloomberg.com was titled "Canada Must Deflate Its Housing Bubble." What does the editorial mean by the "housing bubble"? Why should government policymakers be worried about a housing bubble?

An article in the Economist noted that "the economy's potential to supply goods and services [is] determined by such things as the labour force and capital stock, as well as inflation expectations." Briefly explain whether you agree with this list of the determinants of potential GDP.

Briefly explain how each of the following events would affect the long-run aggregate supply curve. a. A higher price level b. An increase in the labor force c. An increase in the quantity of capital goods d. Technological change
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