2.3.3 Long-run AS

Question 1

What does the Keynesian view suggest about LRAS?

Answer 1

The Keynesian view suggests that the price level in the economy is fixed until resources are fully employed. The horizontal section shows the output and price level when resources are not fully employed; there is spare capacity in the economy. The vertical section is when resources are fully employed.

Question 2

Technological advances:

Answer 2

• ​Improvements in technology shift the LRAS curve to the right, meaning more can be produced

Question 3

Changes in relative productivity:

Answer 3

The more productive the economy is, the more that will be produced with the given resources

Question 4

Changes in education and skills:

Answer 4

• A more skilled workforce will be more employable and work quicker and more efficiently within their jobs, so the output per worker will increase, which will shift the LRAS to the right
• Education could also be used to improve the occupational mobility

Question 5

Changes in demographic changes and migration on LRAS:

Answer 5

If immigration is higher than emigration, the population will grow and so therefore there will be more workers which will increase the LRAS

Question 6

Competition policy on LRAS:

Answer 6

A more competitive market encourages firms to be more efficient and more productive