Factors influencing LRAS curve Flashcards
What causes a shift in the LRAS curve?
A change in the economies level of output.
What is it called when an LRAS curve shifts to the right?
This is known as an ‘increase in the production potential of the economy’.
What is called when the LRAS curve shifts to the left?
This known as ‘a decrease in the productive potential of the economy’.
What factors cause a right shift in the LRAS curve?
(SUMMARISED)
Any factor which increases the quantity or quality of the factors of production such as:
1) Capital.
QUANTITY: e.g investment in new machinery or technological advances.
QUALITY: e.g. investment in technological advances or improvements.
2) Enterprise.
QUANTITY: e.g. invest in more MBA business schools and universities.
QUALITY: e.g. Invest in vocational training programmes.
3) Land.
QUANTITY: e.g. discovery of new territories.
QUALITY: e.g. invest in improving land.
4) Labour.
QUANTITY: Encourages immigration into the country (of skilled workers), encourages more people to join the labour market (e.g. from early retirement).
QUALITY: Invest in education and training programmes to improve the productivity of the workforce ( relative to competitor countries).
What factors cause a right shift in the LRAS curve?
(SPECIFIC)
1) Technological advances.
2) Changes in relative productivity.
3) Changes in education and skills.
4) Changes in government regulations.
5) Demographic changes and migration.
6) Competition policy.
How does technological advances increase productive potential?
Has improved the productive potential of the economy by increasing the output with the same amount of inputs. The internet has sped up the whole production process. This increases the productive potential of the economy by enabling business to produce more goods and services with the same factors of production.
How does changes in relative productivity increase the productive potential of the economy.
Relative productivity refers to the productivity of the UK compared with the UK’s competitor countries. If the UK’s labour and/ or capital productivity improves relative to its competitor countries then the economy can make more output this can occur if the workforce is more productive due to an increase in government spending.
How does changes in education and skills increase the productive potential of the economy?
Increasing investment in the education of pupils at school, will help improve rates of literacy and numeracy. This will enable pupils to improve their skill level and quality in the workplace.
Increasing investment in the level of apprenticeships will improve the practical skills of the UK workforce.
Increasing investment in training at work will help to improve the skills of workers in the workplace. This will make existing workers more productive and increase the output for the same number of workers.
Increasing investment in the education of future generations with more vocational education should increase the productivity of the workforce and increase the productivity per worker.
How does changes in government regulations increase the productive potential of the economy?
If the government loosen the regulations on employment or labour laws, then this may increase worker productivity. For example, The government relaxed the rules on Sunday trading in 1996 and another example is that the government has changed the labour market laws to make the labour market more flexible by allowing self-employment status in companies such as Amazon, Uber, Deliveroo etc, zero hours’ contracts, part time working, home working etc.
How does demographic changes and migration increase the productive potential of the economy?
The demography of a population refers to the age and gender profile of the population. A population with a younger age demographic (and dependency ratio) should enable higher economic growth in the future as the young generation join the labour market.
Encouraging immigration of skilled workers will increase the productive potential of the economy because this will increase the factors of production in the economy.
How does competition policy increase the productive potential of the economy?
The government needs to break up large monopolies and encourage more competition in markets. Monopolies such as Thames Water often have poor quality service (eg leaking waste water into rivers and flooding people’s home with burst water mains while maintaining high prices to customers) If the government encouraged more competition in all markets and stopped mergers and takeovers, this would reduce prices, increase output and increase the productive potential of the economy.
What could technological be increased by?
1) Businesses through higher investment into R&D.
2) Universities through more research.
3) Government reducing corporation tax.
What could changes in relative productivity be caused by?
1) Businesses through more training schemes.
2) Government through more training schemes.
What could changes in education and skills be caused by?
1) Government by making primary and secondary school education free of charge for students.
2) The government by expanding the number of places at universities and reducing student debt.
What could changes in government regulations be caused by?
Government by loosening laws, rules and regulations on employment, trading hours, environmental protection and consumer protection.
