All Flashcards
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.
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.