Determinants of LRAS

Question 1

A shift in the LRAS curve represents a change in potential…

Answer 1

GDP/ output/ employment

Question 2

Factors that change a nation’s potential GDP (LRAS)

Answer 2

• changes in labour supply
• changes in the stock of capital inputs
• improvements in the quality/productivity of factor inputs
• technological advances
• improvement in institutions such as the banking system

Question 3

What does the classical view of long run aggregate supply depict the curve as?

Answer 3

Perfectly inelastic/ vertical line labelled Yfe (full employment)

Question 4

What is the neoclassical approach to show supply curves?

Answer 4

Combine the short run (shifts if costs of production change) and long run (shifts if quantity/quality of factors of production change)

Question 5

Recent technological advancements that could impact LRAS

Answer 5

• 3D metal printing
• custom Vaccines
• nuclear fission

Question 6

Human capital

Answer 6

Skills, experience, aptitudes of human input into the production process

Question 7

Keynesian AS curve

Answer 7

Nonlinear where the elasticity of the curve is dependent on the amount of spare productive capacity at different stages of the economic cycle

Question 8

Explanation of elastic/horizontal section in Keynesian AS

Answer 8

Similar to Neoclassical SRAS
when the spare capacity is high, output can be increased without a significant change in the price level

Question 9

Explanation of in between stage in Keynesian AS

Answer 9

• amount of spare capacity declines
• possibility of diminishing returns
• resource shortages when approaching full employment

Question 10

Explanation of inelastic/vertical section in Keynesian AS

Answer 10

At full capacity is equivalent to being on the ppf boundary: further increases in AD are purely inflationary with little extra real output