Long-run economic growth is generally positive rather than negative because long-run changes in output are driven...

Long-run economic growth is generally positive rather than negative because long-run changes in output are driven by changes in the:

	LRAS, including changes in consumption, investment and net exports.
	LRAS, including changes in labour, capital, and technology.
	aggregate demand, including changes in labour, capital, and technology.
	SRAS, including changes in labour, capital, and technology.

When consumer confidence falls, in the short run:

aggregate supply will shift to the left, reducing equilibrium GDP and price level; but in the long run, the lower price level resulting from reduced aggregate supply will lower costs, increasing aggregate demand and shifting it to the right.
	aggregate demand will shift to the right, increasing equilibrium GDP and price level; but in the long run, the higher price level resulting from increased aggregate demand will increase costs, decreasing aggregate supply and shifting it to the left.
	aggregate supply will shift to the right, increasing equilibrium GDP and price level; but in the long run, the higher price level resulting from increased aggregate supply will increase costs, decreasing aggregate demand and shifting it to the left.
	aggregate demand will shift to the left, reducing equilibrium GDP and price level; but in the long run, the lower price level resulting from reduced aggregate demand will lower costs, increasing aggregate supply and shifting it to the right.

Expert Solution

Rahul Sunny answered 2 years ago

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