Unit 9.3

Question 1

Long run aggregate supply definition

Answer 1

Long run relationship between the price level and real gdp

refers to the total amount of production in an economy given that its full resources are employed

Question 2

Define long rune equilibrium

Answer 2

When the AD curve and SRAS curve intersect at any point on the LRAS curve.

it occurs when wages and prices have fully adjusted to market fluctuations and the economy functions at its full potential and full employment

When the economy is at the natural rate of unemployment that when we are at LRAS as fully employing all factors of production.

Question 3

What non price determinants shift LRAS

Answer 3

Shifts when quantity or quality of factors of production increase, then LRAS shift right. And productive efficiency too as long run cost of production decreases.

1) Increase in labor productivity

2) Increase in investment in economy
e.g. tech advances, new software, this increases the quantity of capital produced and quantity which over time will increase productive efficiency as LR production cost for firms decrease.

Infrastructure:

transport infrastructure will reduce long run costs in the economy because it means that transporting goods and services will take less time and cheaper, more efficient therefore long run cost of production for firms decreases increasing productive efficiency, shifting LRAS right. War destroyes infrastrucutre and cpapital goods, shifthing lras left

Increases in quantity of labour (size of labour force):

Immigration can increase the size of the labor force. Emmigration shift LRAs left

Competition:
Higher competition, firms will want to keep costs down as possible, causing a shift right

New discovery of ressource:
if new ressources discovered, quantity of land factor of production increases which shift LRAS right

Question 4

In the PPC economic growth is showed how