7.6 The determinants of LRAS

Question 1

What are the determinants of LRAS?

Answer 1

technology, productivity, attitudes, enterprise, factor mobility, and economic incentives

Question 2

What does the LRAS curve look like?

Answer 2

Vertical

Question 3

Why is the LRAS curve vertical?

Answer 3

represents the normal capacity level of output of the economy

Question 4

What’s the difference between SRAS and LRAS?

Answer 4

SRAS is for short term solutions and can be changed frequently and LRAS is long run and can be increased overtime

Question 5

What would a decrease in the quantity and/or quality of factors of production do to the LRAS curve?

Answer 5

Shift it left

Question 6

What would a increase in the quantity and/or quality of factors of production do to the LRAS curve?

Answer 6

Shift it right

Question 7

What did Keynes believe about the economy to lead to his model?

Answer 7

believed that an economy could be in equilibrium below full employment