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Chapter 10: Q.20 (page 230)

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?

Short Answer

Expert verified

Over the long haul, a financial development pushes the costs to a lower level (flattening), considering that the total interest and any remaining elements stay unaltered.

Step by step solution

01

introduction

Any adjustment of the condition of creative innovation and amount/nature of variable sources of info causes the LRAS bend to move to one side.

02

explanation

This infers that expanded capacity or efficiency permits the economy to deliver labour and products at a more elevated level. As the AD stays unaltered, in the event that the cost level doesn't fall, there will be an abundance of unsold supply of labour and products in the economy over the long haul. This is shown by EA in the chart underneath.

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Most popular questions from this chapter

Explain why the aggregate demand curve slopes downward and list key factors that cause this curve to shift

Evaluate the meaning of long-run equilibrium for the economy as a whole and explain why economic growth can cause deflation

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?

In Ciudad Barrios, El Salvador, the latest payments from relatives working in the United States have finally arrived. When the credit unions open for business, up to 150 people are already waiting in line. After receiving the funds their relatives have transmitted to these institutions, customers go off to outdoor markets to stock up on food or clothing or to appliance stores to purchase new refrigerators or televisions. Similar scenes occur throughout the developing world, as each year migrants working in higher-income, developed nations send around $200 billion of their earnings back to their relatives in less developed nations. Evidence indicates that the relatives, such as those in Ciudad Barrios, typically spend nearly all of the funds on current consumption.

a. Based on the information supplied, are developing countries' income inflows transmitted by migrant workers primarily affecting their economies' long-run aggregate supply curves or aggregate demand curves?

b. How are equilibrium price levels in nations that are recipients of large inflows of funds from migrants likely to be affected? Explain your reasoning.

Suppose that during a given year, the quantity of U.S. real GDP that can be produced in the long run rises from 17.9trillion to18.0 trillion, measured in base year dollars. During the year, no change occurs in the various factors that influence aggregate demand. What will happen to the U.S. long-run equilibrium price level during this particular year?
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