How the Macroeconomy Works- Determinants of LRAS Flashcards
(10 cards)
What is the assumption about the LRAS curve?
The LRAS curve is vertical
This suggests that output is fixed at each level.
What does a change in AD from AD1 to AD2 affect in the LRAS model?
It changes the price level (P1 to P2) but does not change national output (real GDP)
This indicates that in the long run, output remains constant.
What does the position of the vertical LRAS curve represent?
The normal capacity level of output of the economy
What factors influence the long-run AS?
Changes affecting the quantity or quality of the factors of production
This is equivalent to shifting the PPF curve when the economy operates at full capacity.
How do technological advances affect LRAS?
They allow the economy to produce goods in larger volumes or improve the quality of goods and services produced.
What is the impact of changes in relative productivity on LRAS?
A more productive labour and capital input produces a larger quantity of output with the same quantity of input.
How do changes in education and skills influence LRAS?
They improve the quality of human capital, making it more productive and able to produce a wider variety of goods and services.
What is the effect of excessive government regulations on LRAS?
It could limit how productive and efficient a firm can be, often referred to as ‘red-tape’.
How do demographic changes and migration affect the LRAS?
Net inward migration with a majority of the population of working age increases the size of the labour force.
What role does competition policy play in LRAS?
A more competitive market encourages firms to be more efficient and productive.
