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Chapter 10: Q. 1 LO (page 212)

Discuss the concept of long-run aggregate supply and describe the effect of economic growth on the long-run aggregate supply curve

Short Answer

Expert verified

The long-run quantity supplied (LRAS), which itself is straight so at nation's economic productive potential, illustrates this principle. After certain time has gone for values to normalize, employment would rebound to what it was beforehand.

Step by step solution

01

Given Information

The link between indicant and real GDPthat may be supplied if all prices, including nominal wages, were fully flexible.
Price can move along the LRAS, but output cannot because it reflectseconomic condition output.

02

Explanation 

Rather, the output an economy can produce within the long term is solely determined by the country's resources and technology.
This assumption is illustrated by the long-run aggregate output (LRAS), which again is vertically at the nation's economic productive potential.
After enough time has passed for prices to adapt, output should revert to its potential.

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Most popular questions from this chapter

Continuing from Problem 10-2,suppose that the full-employment level of nominal GDP in the following year rises to 21.85trillion. The long-run equilibrium price level, however, remains unchanged. By how much (in real dollars) has the long-run aggregate supply curve shifted to the right in the following year? By how much, if any, has the aggregate demand curve shifted to the right? (Hint: The equilibrium price level can stay the same only if LRAS and AD shift rightward by the same amount.)

This year, a nation's long-run equilibrium real GDP and price level both increased. Which of the following combinations of factors might simultaneously account for botb occurrences?

a. An isolated earthquake at the beginning of the year destroyed part of the nation's capital stock, and the nation's government significantly reduced its purchases of goods and services.

b. There was a technological improvement at the end of the previous year, and the quantity of money in circulation rose significantly during the year.

c. Labor productivity increased throughout the year, and consumers significantly increased their total planned purchases of goods and services.

d. The capital stock increased somewhat during the year, and the quantity of money in circular. tion declined considerably.

How are deficiencies in the U.S. river system affecting the extent to which the U.S. long-run aggregate supply curve shifts rightward each year?

Evaluate likely reasons for persistent inflation in recent decades

Suppose that during a given year, the quantity of U.S. real GDP that can be produced in the long run rises from 17.9trillion to18.0 trillion, measured in base year dollars. During the year, no change occurs in the various factors that influence aggregate demand. What will happen to the U.S. long-run equilibrium price level during this particular year?
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