Quizzol

	Direction of LRAS Curve Shift
A government-sponsored training program increases the skill level of the workforce.
The government allows more immigration of working-age adults who find work.
A scientific breakthrough significantly increases food production per acre of farmland.

ANSWER:

Assume the Federal Reserve triples the growth rate of the quantity of money in circulation. In the long run, this increase in money growth will affect which of the following? Check all that apply.

The inflation rate

The quantity of physical capital

The price level

The level of technological knowledge

Points:

1 / 1

In the long run, the economy's real GDP depends on labor, capital, natural resources, and technological knowledge. Since changes in the quantity of money do not influence these factors, they do not influence the long-run level of output. If the Fed increases money growth, the price level will rise more quickly, and the inflation rate will increase, but the economy's long-run potential output will not change. In the long run, two related propositions hold: Real and nominal variables are separate (the classical dichotomy), and changes in the quantity of money impact only nominal prices, not production (monetary neutrality).

Suppose when unemployment is at its natural rate the economy produces a level of real GDP equal to $60 billion.

Using the purple points (diamond symbol) plot the economy's long-run aggregate supply (LRAS) curve on the graph.

Points:

1 / 1

The long-run aggregate supply curve is a vertical line at the economy's natural rate of output. The natural rate of output is the level of output consistent with the economy's natural unemployment rate. It is the level of real GDP that the economy gravitates toward in the long run. The long-run aggregate supply curve is vertical at the natural rate of output because the price level has no bearing on the economy's long-run level of real output.

Suppose now the government passes a law that significantly increases the minimum wage. This change in policy will cause the natural rate of unemployment torise Correct

, which will:

Not impact the long-run aggregate supply curve

Shift the long-run aggregate supply curve to the right

Shift the long-run aggregate supply curve to the left

Points:

1 / 1

The position of the long-run aggregate supply curve depends, in part, on the natural rate of unemployment. A policy that increases the natural rate of unemployment will cause the long-run aggregate supply curve to shift to the left. For example, a sharp increase in the minimum wage will increase structural unemployment, thereby raising the natural rate of unemployment and reducing the economy's productive potential.

Complete the following table by determining how each event impacts the position of the long-run aggregate supply (LRAS) curve.

	Direction of LRAS Curve Shift
A government-sponsored training program increases the skill level of the workforce.	Right
The government allows more immigration of working-age adults who find work.	Right
A scientific breakthrough significantly increases food production per acre of farmland.	Right

Points:

1 / 1

An effective training program will increase the skill level of the workforce, boosting the economywide stock of human capital. A more knowledgeable workforce will produce more goods and services. The increase in human capital shifts the long-run aggregate supply curve to the right.

Loosening immigration restrictions will increase the size of the labor force and the economy's productive ability. An increase in labor shifts the long-run aggregate supply curve to the right.

An improvement in technological knowledge that boosts agricultural yields enables farmers to get more output from an existing level of natural resources. It will increase the productive potential of the economy, shifting the long-run aggregate supply curve to the right.

5. The slope and position of the long-run aggregate supply curve