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Chapter 10: Q. 1FCT (page 226)

How could a return of the U.S. population growth rate to its previous level reduce the disinflationary effect of secular stagnation?

Short Answer

Expert verified

This has improved the nation's overall potential (GDP).

Step by step solution

01

Human capacity.

A production possibilities curve can be linked to the economy's long-run aggregate supply curve. The nation's output potential is determined by its long-run aggregate supply. The nation's production potential curve has shifted outside with the addition of natural resources and human capital to the economy.

02

Productive capacity.

This means that the nation's production capability is expanded with a fresh set of resources. Because the long run aggregate supply curve captures this capacity, the LRAScurve shifts to the right. This has increased the country's overall potential (GDP).

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Most popular questions from this chapter

Suppose that the position of a nation's long-run aggregate supply curve has not changed, but its long-run equilibrium price level has increased. Which of the following factors might account for this event?

a. A rise in the value of the domestic currency relative to other world currencies

b. An increase in the quantity of money in circulation

c. An increase in the labor force participation rate

d. A decrease in taxes

e. A rise in real incomes of countries that are key trading partners of this nation

f. Increased long-run economic growth

Has China's production possibilities curve been shifting outward or inward were the past 40years? Explain your answer

Explain whether each of the following events would cause a movement along or a shift in the position of the L.RAS curve, other things being equal. In each case, explain the direction of the movement along the curve or shift in its position.

a. Last year, businesses invested in new capital equipment, so this year the nation's capital stock is higher than it was last year.

b. There has been an 8 percent increase in the quantity of money in circulation that has shifted the ADcurve.

c. A hurricane of unprecedented strength has damaged oil rigs, factories, and ports all along the nation's coast.

d. Inflation has occurred during the roast year as a result of rightward shifts of theAD curve.

Take a look at the panel (a) of Figure 10-6. In the absence of a change in aggregate demand, what effect does economic growth have on the price level over time, other things being equal? Why?

Explain why the aggregate demand curve slopes downward and list key factors that cause this curve to shift
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