Question

The long run aggregate supply curve is a vertical line. It is so because it has nothing to do with the price level. It is rather determined by availability of economic resources and technology. How will the followings shift the long run aggregate supply (LRAS) curve? to the right, to the left? a. climate change permanently reduces the amount of land that can be farmed. b. immigration increases the available supply of labor. c. ageing population takes workers out of the labor force. d. a new law stripping away intellectual property rights reduces the incentive to innovate.

Answer 1

Answer:

a. To the left

b. To the right

c. To the left

d. To the left

Explanation:

a. A reduction in total area to do farming means that the economy will be able to produce less. This will shift the aggregate supply curve to the left.

b. Immigration causes the supply of labor to increase. This means that more labor can be employed in the process of production.

c. A reduction in the labor force due to the aging population will cause the aggregate supply curve to move to the left. This is because, with the fewer labor force, the economy will be able to produce less.

d. A new law that reduces the incentive to innovate will cause the aggregate supply curve to shift to the left. A reduction in innovation means fewer technological advancement.