Macro - Long-run AS

Question 1

Keynesian LRAS model

Answer 1

Keynesian argued that the idea of wages being variable in the long run was unrealistic.
There is only on AS curve which is determined by the level of spare capacity within the economy.

Question 2

Classical LRAS model

Answer 2

The classical model has both SRAS and LRAS whereas the Keynesian only has 1.
The classical model wages are fixed in the short run and the long run is determined by wages being variable.
Wages are fixed in the short run due to strong trade unions making it difficult for firms to lower wages.

Question 3

Technological affects on LRAS

Answer 3

An increase in productivity as technological advancements can lead to increased productivity therefore shifting LRAS.

Question 4

Changes in relative productivity’s affects on LRAS

Answer 4

Structural change between sectors can lead to a shift in the structure of the economy, as resources and labour move from low-productivity sectors to high productivity would shift LRAS.

Question 5

Changes on education and skills affects on LRAS

Answer 5

Education can impact the size of the labour force, as more educated individuals are more likely to seek work leading to an increase in LRAS

Question 6

Changes in government regulations affects on LRAS

Answer 6

Regulations can increase production costs such as environmental regulations or labour regulations which could reduce LRAS
Regulations that affect investment such as tax policies can impact the LRAS by affecting availability of credit

Question 7

Demographic changes and migrations affects on LRAS

Answer 7

Can affect the size of the Labour force for example changes in birth rates or death rates can impact the size and then LRAS.

Question 8

Competition policy’s affects on LRAS

Answer 8

Competition policy can encourage investment as firms are more likely to invest in new technologies and expand their operations in a competitive market which can increase LRAS