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Chapter 10: Q. 1FCT (page 226)

How could a return of the U.S. population growth rate to its previous level reduce the disinflationary effect of secular stagnation?

Short Answer

Expert verified

This has improved the nation's overall potential (GDP).

Step by step solution

01

Human capacity.

A production possibilities curve can be linked to the economy's long-run aggregate supply curve. The nation's output potential is determined by its long-run aggregate supply. The nation's production potential curve has shifted outside with the addition of natural resources and human capital to the economy.

02

Productive capacity.

This means that the nation's production capability is expanded with a fresh set of resources. Because the long run aggregate supply curve captures this capacity, the LRAScurve shifts to the right. This has increased the country's overall potential (GDP).

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Most popular questions from this chapter

How are deficiencies in the U.S. river system affecting the extent to which the U.S. long-run aggregate supply curve shifts rightward each year?

In Figure 10-2, if the economy acquires a larger amount of capital goods in the current year, does a larger or smaller outward shift in the production possibilities curve result? Does the LRAS curve shift more or less far to the right? Why?

Take a look at the panel (a) of Figure 10-6. In the absence of a change in aggregate demand, what effect does economic growth have on the price level over time, other things being equal? Why?

Consider panel (a) of Figure 10-8. What type of variation in the position of the long-run aggregate supply curve could generate inflation-that is, an increase in the equilibrium price level? In a nation that generally experiences economic growth over the long run, would we anticipate that such a change in the position of the long-run aggregate supply curve could explain persistent inflation?

Suppose that the position of a nation's long-run aggregate supply curve has not changed, but its long-run equilibrium price level has increased. Which of the following factors might account for this event?

a. A rise in the value of the domestic currency relative to other world currencies

b. An increase in the quantity of money in circulation

c. An increase in the labor force participation rate

d. A decrease in taxes

e. A rise in real incomes of countries that are key trading partners of this nation

f. Increased long-run economic growth
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