Question

Indicate whether the scenarios would result in an increase, a decrease, or no change in the long-run aggregate supply (LRAS) curve for a hypothetical economy. Each label may be used more than once.1. The mandatory retirement age in Wonkaland is abolished. 2. Wonkaland's main export is candy. Candy from this country increases in popularity as consumers all over the world want to buy Wonkalandian candy. 3. Since candy from Wonkaland has become an international sensation, factories in Wonkaland double the number of candy making machines. 4. The top candy companies in Wonkaland chose to relocate their means of production to other countries around the world.

Answer 1

Answer:

1. The mandatory retirement age in Wonkaland is abolished.

• INCREASE IN THE LONG RUN AGGREGATE SUPPLY CURVE: greater use of labor

2. Wonkaland's main export is candy. Candy from this country increases in popularity as consumers all over the world want to buy Wonkalandian candy.

• NO CHANGE IN THE LONG RUN AGGREGATE SUPPLY CURVE

3. Since candy from Wonkaland has become an international sensation, factories in Wonkaland double the number of candy making machines.

• INCREASE IN THE LONG RUN AGGREGATE SUPPLY CURVE: greater use of capital investments

4. The top candy companies in Wonkaland chose to relocate their means of production to other countries around the world.

• DECREASE IN THE LONG RUN AGGREGATE SUPPLY CURVE: lower use of capital investments

Explanation:

The long run aggregate supply curve is only affected by changes in capital, labor and technology. If the use of these factors increases, the LRAS curve will increase, if their use decreases, then the LRAS curve decreases.