All Flashcards
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.
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.
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.