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Chapter 10: Q.18 (page 230)

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?

Short Answer

Expert verified

The huge acquisition of capital merchandise accordingly causes a development along the PPF from A to B and causes a not exactly proportionate change in the PPF and LRAS to one side.

Step by step solution

01

introduction

The makers change the creation levels to meet the inflated expense of creation. In this manner, over the long haul, the inventory doesn't change in response to changes in the total interest

02

explanation

The capital stock secured in a huge sum converts into the genuine creation throughout a given timeframe. The stock usage is subject to different elements like ability, work efficiency, new innovation and so forth. The change in the PPF characterizes an expansion in the creation potential over the long haul because of further developed innovation, capital and work staying unaltered.

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Most popular questions from this chapter

Consider Figure 10-4. What are the three effects of decreases in the price level, and do these generate upward or downward movements along the economy's aggregate demand curve?

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?

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.)

Suppose that there is a sudden rise in the price level. What will happen to economywide planned spending on purchases of goods and services? Why?

For each question, sщpose that the exonorm begins at the long-run equilibrium point Ain the diagram below. Identify which of the other points on the diagram-points B,C,D, or E-could represent a new long-run equilibrium after the described events take place and move the economy away from point A.

a. Significant productivity improvements occur, and the quantity of money in circulation increases.

b. No new capital investment takes place, and a fraction of the existing capital stock depreciates and becomes unusable. At the same time, the government imposes a large tax increase on the nation's households.

c. More efficient techniques for producing goods and services are adopted throughout the economy at the same time that the government reduces its spending on goods and services.
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