Describe whether the following changes cause the long-run aggregate supply curve to increase (shift right), decrease...

Describe whether the following changes cause the long-run aggregate supply curve to increase (shift right), decrease (shift left), or neither. (a) The price level increases. (b) The stock of capital in the economy increases. (c) Natural resources increase. (d) The price level decreases. (e) Firms and workers expect the price level to rise. (f) The number of workers in the labor force increases.

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Expert Solution

Long-run aggregate supply (LRAS) represents the potential GDP in the economy which increases (decreases) with increase (decrease) in level of resources and technological endowment in the economy.

(a) Increase in price level will not impact potential GDP, so LRAS will not shift.

(b) Increase in capital stock in economy will increase resources of production, which will increase potential GDP. LRAS will shift rightward.

(c) Increase in natural resources in economy will increase resources of production, which will increase potential GDP. LRAS will shift rightward.

(d) Decrease in price level will not impact potential GDP, so LRAS will not shift.

(e) Expected increase in price level will not impact potential GDP, so LRAS will not shift.

(f) Increase in number of workers will increase labor force, thus increasing the resources of production, which will increase potential GDP. LRAS will shift rightward.

Rahul Sunny answered 1 year ago

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