Question

. For each of the following events, what is the effect on the SRAS and LRAS curves?

a. The labour force grows

b. The amount of capital in the economy increases

c. Labour productivity rises

d. Energy prices rise

Answer 1

If there is an increase in the labour force there is an increase in the potential GDP. long run aggregate supply curve will be shifting to the right

if there is an increase in the amount of capital in the economy it will be considered as an increase in resources. once again this will increase potential GDP and shift the long run aggregate supply curve to the right

Increase in the labour productivity will increase both the long run and short run aggregate supply curve. This is because greater productivity will imply increased potential GDP

Increase in the energy prices will shift the short run aggregate supply curve to the left. This is because this will increase cost of production and hence there will be reduced production.