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Chapter 10: Q.20 (page 230)

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?

Short Answer

Expert verified

Over the long haul, a financial development pushes the costs to a lower level (flattening), considering that the total interest and any remaining elements stay unaltered.

Step by step solution

01

introduction

Any adjustment of the condition of creative innovation and amount/nature of variable sources of info causes the LRAS bend to move to one side.

02

explanation

This infers that expanded capacity or efficiency permits the economy to deliver labour and products at a more elevated level. As the AD stays unaltered, in the event that the cost level doesn't fall, there will be an abundance of unsold supply of labour and products in the economy over the long haul. This is shown by EA in the chart underneath.

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Most popular questions from this chapter

Take a look at the panel (b) of Figure 10-6. If the Federal Reserve seeks to prevent secular deflation from taking place as a consequence of economic growth, how should it change the quantity of money in circulation? How would this policy action prevent secular deflation?

Many economists view the natural rate of unemployment as the level observed when real GDP is given by the position of the long-run aggregate supply curve. How can there be positive unemployment in this situation?

10-13. Explain whether each of the following events would cause a movement along or a shift in the ADcurve, other things being equal. In each case, explain the direction of the movement along the curve or shift in its position.

a. Deflation has occurred during the past year.

b. Real GDP levels of all the nation's major trading partners have declined.

c. There has been a decline in the foreign exchange value of the nation's currency,

d. The price level has increased this year.

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.

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.)
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