All Flashcards
What does a rightward shift of the LRAS curve indicate?
Economic growth and an increase in potential output.
What does a leftward shift of the LRAS curve indicate?
A decrease in potential output and economic contraction.
On an LRAS graph, what is on the x and y axis?
Real GDP (x-axis) and Price Level (y-axis).
How does the LRAS curve relate to the Production Possibilities Curve (PPC)?
LRAS is the economy's PPC on a macroeconomic scale; shifts in LRAS are analogous to shifts in the PPC.
How is long-run equilibrium shown on an LRAS graph?
The intersection of AD, SRAS, and LRAS.
What does the vertical shape of the LRAS curve signify?
Output is independent of the price level in the long run.
How does technological advancement appear on an LRAS graph?
A rightward shift of the LRAS curve.
How does a decrease in the labor force appear on an LRAS graph?
A leftward shift of the LRAS curve.
How is the full employment output level (YF) represented on an LRAS graph?
The point where the LRAS curve intersects the x-axis (Real GDP).
How are changes in the price level represented on an LRAS graph?
Price level changes do not shift the LRAS curve, but affect the AD and SRAS curves.
How does increased investment in education affect LRAS?
Increases the quality of labor, shifting LRAS to the right.
How does a technological breakthrough in manufacturing affect LRAS?
Increases productivity, shifting LRAS to the right.
How does a decrease in the size of the workforce affect LRAS?
Decreases the quantity of labor, shifting LRAS to the left.
How do government subsidies for research and development affect LRAS?
Encourage technological advancement, shifting LRAS to the right.
How does the depletion of natural resources affect LRAS?
Decreases the quantity of resources, shifting LRAS to the left.
How does improved infrastructure affect LRAS?
Increases productivity and efficiency, shifting LRAS to the right.
How do tax incentives for capital investment affect LRAS?
Encourage firms to invest in new technology and equipment, shifting LRAS to the right.
How does a decline in the quality of education affect LRAS?
Reduces the skills of the workforce, shifting LRAS to the left.
How does an increase in immigration affect LRAS?
Increases the size of the workforce, shifting LRAS to the right.
How does a natural disaster that destroys capital affect LRAS?
Decreases the quantity of capital, shifting LRAS to the left.
Differentiate between LRAS and SRAS.
LRAS represents potential output in the long run; SRAS represents actual output in the short run.
What is the difference between actual output and potential output?
Actual output is what the economy is currently producing; potential output is what it could produce at full employment.
Compare the effects of monetary policy on SRAS and LRAS.
Monetary policy primarily affects SRAS in the short run; it has little to no impact on LRAS.
Compare the effects of fiscal policy on SRAS and LRAS.
Fiscal policy can affect both SRAS and LRAS, but its long-run effects are primarily through supply-side channels.
What is the difference between quantity and quality of resources?
Quantity refers to the amount of resources available; quality refers to their productivity and effectiveness.
Compare the impact of short-run fluctuations and long-run growth on LRAS.
Short-run fluctuations do not shift LRAS; long-run growth factors do.
Differentiate between factors that shift AD versus LRAS.
AD shifts due to changes in consumption, investment, government spending, and net exports; LRAS shifts due to changes in resources, technology, and institutions.
Compare the effects of a change in the price level on SRAS and LRAS.
A change in the price level causes a movement along the SRAS curve, but does not shift the LRAS curve.
What is the difference between supply-side and demand-side economics?
Supply-side economics focuses on factors that shift LRAS; demand-side economics focuses on factors that shift AD.
Compare the effects of technology improvements on SRAS and LRAS.
Technology improvements cause SRAS to shift right; LRAS also shifts right, representing long-run economic growth.