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Chapter 10: Q. 2CTQ (page 225)

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?

Short Answer

Expert verified

Because of the lower capacity, long-term aggregate supply is expected to fall, and the LRAS curve will shift to the left.

Step by step solution

01

Production possibilities.

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. Reduced resources in the form of bridges will limit the economy's productive capability. This is especially true as more roadways become insufficient, unable to convey at the same cost and at the same time, T.

02

LRAS curve.

This appears to be slowing down the rate at which thePPF shifts over time. As a result of the lower capacity, long-term aggregate supply is expected to fall, and the LRAS curve will move to the left.

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Most popular questions from this chapter

In Figure 10-2, if the economy acquires a larger amount of capital goods in the current year, does a larger or smaller outward shift in the production possibilities curve result? Does the LRAS curve shift more or less far to the right? Why?

Why might a return of the U.S. population growth rate to its prior level also tend to boost the growth of U.S. Long-run aggregate supply? (Hint: Recall that real GDP growth is generated by the contributions of growth in labour and capital and growth in productivity of these resources.)

In Ciudad Barrios, El Salvador, the latest payments from relatives working in the United States have finally arrived. When the credit unions open for business, up to 150 people are already waiting in line. After receiving the funds their relatives have transmitted to these institutions, customers go off to outdoor markets to stock up on food or clothing or to appliance stores to purchase new refrigerators or televisions. Similar scenes occur throughout the developing world, as each year migrants working in higher-income, developed nations send around $200 billion of their earnings back to their relatives in less developed nations. Evidence indicates that the relatives, such as those in Ciudad Barrios, typically spend nearly all of the funds on current consumption.

a. Based on the information supplied, are developing countries' income inflows transmitted by migrant workers primarily affecting their economies' long-run aggregate supply curves or aggregate demand curves?

b. How are equilibrium price levels in nations that are recipients of large inflows of funds from migrants likely to be affected? Explain your reasoning.

Consider panel (a) of Figure 10-8. What type of variation in the position of the long-run aggregate supply curve could generate inflation-that is, an increase in the equilibrium price level? In a nation that generally experiences economic growth over the long run, would we anticipate that such a change in the position of the long-run aggregate supply curve could explain persistent inflation?

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