Question

Determine whether the following changes or events would shift the LRAS curve to the right, to the left, or not at all.A. A large new oil field is discovered off the coast of California.B. The price level increases.C. Microhard develops new computer hardware that doubles data transmission speeds.D. Political instability leads to the overthrow of the government.E. The U.S. government deports a large number of illegal aliens.F. The government provides more generous unemployment benefits

Answer 1

Answer:

Long run supply curve is represented by the vertical line. The factors that affects the long run supply curve to shift are as follows:

(i) Technological changes

(ii) Abundance of natural resources

(iii) Factors of production (Inputs)

A. This discovered oil field will lead to increase the output of the firms in the future. So, aggregate supply curve shifts rightwards and hence long run supply curve also shifts rightwards.

B. Because of the increase in the price level the aggregate supply is independent from price in the long run. So, Long run supply curve remains the same.

C. There is a technological advancement which increase the production level and this will shift the long run supply curve rightwards.

D. Political instability reduce the production of the firms in an economy because of the continuously changes in the policies. Therefore, this will shift the long run supply curve leftwards.

E. Deportation of large no. of illegal aliens will lead to reduce the labor supply in an economy and this will affects the production and consumption. Hence, leftward shift in the long run supply curve.

F. The generous unemployment benefits given by the government will lead give an incentive to the labor to not to work. Hence, there is a fall in the labor supply and shifts the long run supply curve leftwards.