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Chapter 10: Q. 1 LO (page 212)

Discuss the concept of long-run aggregate supply and describe the effect of economic growth on the long-run aggregate supply curve

Short Answer

Expert verified

The long-run quantity supplied (LRAS), which itself is straight so at nation's economic productive potential, illustrates this principle. After certain time has gone for values to normalize, employment would rebound to what it was beforehand.

Step by step solution

01

Given Information

The link between indicant and real GDPthat may be supplied if all prices, including nominal wages, were fully flexible.
Price can move along the LRAS, but output cannot because it reflectseconomic condition output.

02

Explanation

Rather, the output an economy can produce within the long term is solely determined by the country's resources and technology.
This assumption is illustrated by the long-run aggregate output (LRAS), which again is vertically at the nation's economic productive potential.
After enough time has passed for prices to adapt, output should revert to its potential.

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Most popular questions from this chapter

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?

Continuing from Problem $10 - 2,$ suppose that the full-employment level of nominal GDP in the following year rises to $21.85$ trillion. The long-run equilibrium price level, however, remains unchanged. By how much (in real dollars) has the long-run aggregate supply curve shifted to the right in the following year? By how much, if any, has the aggregate demand curve shifted to the right? (Hint: The equilibrium price level can stay the same only if $L R A S$ and $A D$ shift rightward by the same amount.)

How could a return of the U.S. population growth rate to its previous level reduce the disinflationary effect of secular stagnation?

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.

Take a look at the panel (b) of Figure 10-8. What change in the position of the aggregate demand curve could generate inflation-that is, an increase in the equilibrium price level? What type of variation in the quantity of money placed into circulation by the Federal Reserve could generate such a change in the position of the aggregate demand curve?

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