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Chapter 10: Q. 1FCT (page 226)

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

Short Answer

Expert verified

This has improved the nation's overall potential (GDP).

Step by step solution

01

Human capacity.

A production possibilities curve can be linked to the economy's long-run aggregate supply curve. The nation's output potential is determined by its long-run aggregate supply. The nation's production potential curve has shifted outside with the addition of natural resources and human capital to the economy.

02

Productive capacity.

This means that the nation's production capability is expanded with a fresh set of resources. Because the long run aggregate supply curve captures this capacity, the $L R A S$ curve shifts to the right. This has increased the country's overall potential $(G D P)$ .

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Most popular questions from this chapter

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.)

Suppose that during the past $3$ years, equilibrium real GDP in a country rose steadily, from $450$ billion to $500$ billion, but even though the position of its aggregate demand curve remained unchanged, its equilibrium price level steadily declined, from $110$ to $103$ . What could have accounted for these outcomes, and what is the term for the change in the price level experienced by this country?

Assume that the economy is in long-run equilibrium with complete information and that input prices adjust rapidly to changes in the prices of goods and services. If there is a rise in the price level induced by an increase in aggregate demand. what happens to real GDP?

Has China's production possibilities curve been shifting outward or inward were the past $40$ years? Explain your answer

This year, a nation's long-run equilibrium real GDP and price level both increased. Which of the following combinations of factors might simultaneously account for botb occurrences?

a. An isolated earthquake at the beginning of the year destroyed part of the nation's capital stock, and the nation's government significantly reduced its purchases of goods and services.

b. There was a technological improvement at the end of the previous year, and the quantity of money in circulation rose significantly during the year.

c. Labor productivity increased throughout the year, and consumers significantly increased their total planned purchases of goods and services.

d. The capital stock increased somewhat during the year, and the quantity of money in circular. tion declined considerably.

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