1) Changes in aggregate suply: List three factos that can change theeconomy\'s p
ID: 1235060 • Letter: 1
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1) Changes in aggregate suply: List three factos that can change theeconomy's potential output. What is the impact of shifts of theaggregate demand curve on potential output? 2) In interpreting the short-run aggregate supply curve, whatdoes the adjective short-run mean? Explain the role of labor contracts alongthe SRAS curve. 3) How does an economy that is experiencing an expansionarygap adjust in the long run? Thank you for your help. 1) Changes in aggregate suply: List three factos that can change theeconomy's potential output. What is the impact of shifts of theaggregate demand curve on potential output? 2) In interpreting the short-run aggregate supply curve, whatdoes the adjective short-run mean? Explain the role of labor contracts alongthe SRAS curve. 3) How does an economy that is experiencing an expansionarygap adjust in the long run? Thank you for your help.Explanation / Answer
1) Three factors that can affect the economy's potentialoutput: - Technology - Abundance/price of raw materials - Supply of labor While shifts in the aggregate demand curve will not affect how muchoutput an economy is capable of producing, it will shift the actualmix of products in favor of those for which there is moredemand. 2) The adjective short-run refers to the time period in which atleast one factor of production is fixed, and the fixed factors haveno impact on a company's decision making process. Labor contracts convert labor from variable to fixed costs in theshort run, as they promise the workers a fixed amount of money fora certain period of time. Because of this inability to regard laboras a variable cost, the company is unable to cut back on workersimmediately when demand is insufficient and is afraid to take onadditional workers temporarily. 3) An expansionary gap is a negative output gap, occurring whenactual output is higher than potential output. To correct this gap,inflation occurs and costs increase. In terms of activegovernmental intervention, the goal should be to reduce aggregatedemand via contractionary policies.
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