LRAS Aggregate Supply

• What does long-run aggregate supply represent?

  Productive capacity of the economy
• What factors can change potential GDP?

  Quantity and quality of land, labour, capital
• How does an increase in investment affect LRAS?

  It increases long-run aggregate supply
• What are some factors influencing long-run aggregate supply?

  Technological advances and education changes
• How does net inward migration affect potential output?

  Increases quality and quantity of labour
• What is the impact of competition policy on long-run aggregate supply?

  Encourages new business start-ups and investment
• What scenarios can increase potential output?

  1. Net inward migration of skilled labour
  2. Investment in education and training
  3. Measures to encourage new business start-ups
  4. Higher spending on research and development
  5. Openness to international trade
  6. Advances in production technologies
  7. Investment in critical social infrastructure
  8. Incentives for job seekers
  9. Changes in school-leaving and retirement ages
  10. Improved management practices
• What is the Classical model of LRAS also known as?

  Monetarist model
• What does the Classical model assume about the economy?

  It is always at full employment
• How does the Keynesian model differ from the Classical model?

  It acknowledges the economy can be below potential
• What did Keynes believe about government intervention?

  It is necessary to help the economy
• What does the quantity Q* represent in the LRAS model?

  Maximum amount of supply in the long-run
• When should you use SRAS instead of LRAS?

  For showing changes in production costs
• What happens to SRAS when production costs change?

  It shifts immediately
• What is the effect of temporary changes in production costs on LRAS?

  They do not impact LRAS in the long-term
• What type of policy attempts to shift LRAS?

  Supply-side policy
• What is the intention of any supply-side policy?

  Change quantity or quality of resources