2.3.3

Question 1

LRAS

Answer 1

An approach that explains how much an economy can produce by using all factors of production to their optimum capacity.

Question 2

LRAS curve

Answer 2

Vertical or perfectly inelastic - quantity of goods and services that firms are willing and able to produce and sell in the long run is not affected by changes in the price level.

Question 3

Right shift in LRAS

Answer 3

An increase in capacity to produce

Question 4

Left shift in LRAS

Answer 4

Occurs when there is a decrease in the economy’s capacity

Question 5

Increase in production costs

Answer 5

Will lead to a decrease in aggregate supply due to a lack of willingness and ability to produce and sell goods and services at the same price level.

Question 6

Increase in technology

Answer 6

Will lead to an increase in aggregate supply - firms will be able to produce and sell more goods and services at the same price level.

Question 7

Decrease in resource availability

Answer 7

Will lead to a decrease in AS - less firms will be able to produce and sell goods and services at the same price level

Question 8

Increase in business confidence

Answer 8

Will lead to an increase in AS as firms will be more willing and able to invest in production and operation expansion.

Question 9

Improvements in education

Answer 9

Increase in productivity causing a rightward shift in the LRAS - higher productive capacity of the country

Question 10

Migration and LRAS

Answer 10

If there is a growth in the labour force due to migration, there will be an increase in LRAS. Older populations (Japan) will have a lower LRAS.

Question 11

Competition

Answer 11

An increase in competition will increase LRAS as there are more options - leads to more capacity.