Question

Consider panel (a) of Figure 10-8. What type of variation in the position of the long-run aggregate supply curve could generate inflation-that is, an increase in the equilibrium price level? In a nation that generally experiences economic growth over the long run, would we anticipate that such a change in the position of the long-run aggregate supply curve could explain persistent inflation?

Short answer

A leftward shift in the total inventory bend from LRAS to LRAS$2$creates expansion in the economy. In a creating economy, expansion is brought about by higher total interest (AD).

Step-by-step solution

introduction

Any adjustment of the condition of creative innovation and the amount/nature of variable information sources causes the LRAS bend to move.

explanation part (1)

A negative change in the two elements would cause the LRAS bend to move leftwards. The downturn in the economy over the long haul prompts this negative development and pushes the Real GDP to bring down a level as shown by LRAS$2$ in the figure above.

explanation part (2)

This suggests that diminished ability or efficiency permits the economy to create labour and products at a lower level. The government use steps the rising way. This suggests that utilization, venture and government use expand in such an economy pushing the AD bend to $A{D}_2$that is, a higher total interest level.