All Flashcards
Define Long-Run Aggregate Supply (LRAS).
Potential output of an economy when all resources are fully employed.
What is full employment in the context of LRAS?
The natural rate of unemployment, the lowest sustainable level.
What does the vertical LRAS curve indicate?
Output is determined by resources and technology, not the price level.
Define full employment output (YF).
The level of output when all resources are fully employed at the natural rate of unemployment.
What is potential output?
The maximum amount of goods and services an economy can produce when all its resources are fully employed.
Define capital stock.
The total amount of physical goods existing at a particular time that have been produced for use in the production of other goods and services.
What is the natural rate of unemployment?
The unemployment rate that exists when the economy is producing at its potential output.
Define productivity.
The quantity of goods and services produced from each unit of labor input.
What is meant by 'quality of resources'?
The level of education, skills, and technology available in an economy.
Define economic growth in the context of LRAS.
An increase in the potential output of an economy, represented by a rightward shift of the LRAS curve.
How do tax incentives for research and development affect LRAS?
Promote technological advancement, shifting LRAS to the right.
How does government investment in infrastructure affect LRAS?
Increases productivity and efficiency, shifting LRAS to the right.
How do policies that encourage immigration affect LRAS?
Increase the size of the workforce, shifting LRAS to the right.
How do policies that improve education quality affect LRAS?
Enhance the skills of the workforce, shifting LRAS to the right.
How do policies that protect property rights affect LRAS?
Encourage investment and innovation, shifting LRAS to the right.
How do policies that increase the minimum wage affect LRAS?
May reduce employment and productivity, potentially shifting LRAS to the left.
How do policies that restrict trade affect LRAS?
Limit access to resources and technology, potentially shifting LRAS to the left.
How do policies that increase government debt affect LRAS?
May crowd out private investment, potentially shifting LRAS to the left.
How do policies that promote competition affect LRAS?
Encourage innovation and efficiency, shifting LRAS to the right.
How do policies that reduce regulation affect LRAS?
May increase investment and productivity, shifting LRAS to the right.
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.