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Chapter 10: Q.22 (page 230)

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?

Short Answer

Expert verified

A leftward shift in the total inventory bend from LRAS to LRAS2creates expansion in the economy. In a creating economy, expansion is brought about by higher total interest (AD).

Step by step solution

01

introduction

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

02

explanation part (1)

A negative change in the two elements would cause the LRAS bend to move leftwards. The downturn in the economy over the long haul prompts this negative development and pushes the Real GDP to bring down a level as shown by LRAS2 in the figure above.

03

explanation part (2)

This suggests that diminished ability or efficiency permits the economy to create labour and products at a lower level. The government use steps the rising way. This suggests that utilization, venture and government use expand in such an economy pushing the AD bend to AD2that is, a higher total interest level.

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Most popular questions from this chapter

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

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?

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.

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