Having led in along mobile adoption since the 1900s, South Korea is taking a pre

Question

Having led in along mobile adoption since the 1900s, South Korea is taking a preemptive action to develop a 5k network. the government of South Korea is spending $1.5 billion on upgrading the networks which is expected to be fully rolled out in 2020.

a) with the spending of $1.5 billion, how do you expect the aggregate demand to change in south korea.

b) If the 5ag network can be successfully rolled out in 2020, will there be any changes in South Korea's short run aggregate supply and long run aggregate supply?

Explanation / Answer

a)

The demand curve for any individual good shows the inverse relationship between price and quantity demanded of the good. That is when price fall the quantity demanded of that particular good rises. The aggregate demand curve is the summation of all individual demands in all the sectors in the economy, viz., consumer, investment, government and foreign. It represents the demand for all the final goods and services produced within an economy during a given period of time. Thus, aggregate demand represents the inverse relationship between level of price and the quantity of final goods and service demanded in an economy during a given period of time.

The increase in government spending increases personal income and stimulate aggregate demand to set off a multiplier effect that increases income of the economy. Thus the increase in government spending $1.5 billion will increase the aggregate demand and income by more than $1.5 billion.

===============================================================================

b)

The aggregate supply curve depicts the positive relationship between quantity supplied and the aggregate price level in the economy. There are two different supply curves: long run supply curve and short run supply curve. The short run supply curve given the quantity the domestic firms will supply at any given level of prices. The long run supply curve gives the potential output of the economy that can be produced given the efficient use of all its resources.

The long run aggregate supply curve gives the value of all final goods and services that can be produced in the long run. In the long run all the prices including wages are flexible to adjust according to changing prices and competitive forces ensures the efficient use of resources. Thus, in the long run economy produces its potential output. This is fixed by the availability of resources. The country cannot produce beyond its potential output in the long run unless the factor which affects the potential output, such as technology, changes.

Thus, the increase in technology increases the productivity iof existing resources and will increase the potential output of the economy. This will shift the long run aggregate supply curve outward. The technology can decrease the input prices in terms of increased connectivity and better communication. This will increase the profitability of the producers and the producers will expand their production. This will shift the short run aggregate supply to the right.

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.