Question

The? long-run aggregate supply curve shifts outward when A. the? real-balance effect takes hold. B. there is economic growth. C. there are changes in the power of government. D. there is increased demand of real goods and services.

Answer 1

The aggregate supply curve depicts the positive relationship between quantity supplied and the aggregate price level in the economy. There are two different supply curves: long run supply curve and short run supply curve. The short run supply curve given the quantity the domestic firms will supply at any given level of prices. The long run supply curve gives the potential output of the economy that can be produced given the efficient use of all its resources.

The factors that changes long run aggregate supply curve are

• Changes in supply of resources.
• Changes in the technology.
• Changes in the efficient use of resources.
• Economic growth

The economic growth increases the productive capacity of an economy. This means that the country can produce more goods and services from the available resources. This means that the GDP of the economy increases. If the rate of growth of GDP is greater than the growth in population, the per capita income of the economy increases. This means income per person will be higher. The more income means better living, greater access to basic amenities of life like food, education health care. This implies higher living standard for the entire population.

Therefore, the correct option is: (B)