4.2.6 Determinants of long-run aggregate supply

• What does Long-Run Aggregate Supply (LRAS) represent?

  Potential output
• The LRAS curve is vertical on a supply-demand graph.
• Match the resource factor with its description:

  Land ↔️ Natural resources

  Labor ↔️ Workforce size and productivity

  Capital ↔️ Physical resources
• How do technological advancements affect LRAS?

  Shift it to the right
• The introduction of automation in manufacturing increases labor productivity.


  True
• Technological advancements such as automation enhance an economy's productive capacity
• Match the factors affecting LRAS with their impacts:

  Capital ↔️ Increases with investment in physical capital

  Labor ↔️ Rises with growth in labor force size and productivity

  Natural Resources ↔️ Expands with discovery or improved access

  Technology ↔️ Shifts LRAS rightward with innovations
• LRAS is independent of the price level and reflects the economy's potential output.
• What shape is the LRAS curve on a supply-demand graph?

  Vertical
• Steps in the process of technological advancements affecting LRAS:

  1️⃣ New technologies are developed

  2️⃣ Firms adopt new technologies

  3️⃣ Productivity increases

  4️⃣ LRAS shifts to the right
• A decline in the quality of natural resources would shift the LRAS curve to the left.


  True
• Changes in price level affect LRAS.

  False
• What is the key difference between LRAS and SRAS?

  Price independence
• An increase in the quality of labor shifts the LRAS curve to the right.


  True
• Technological advancements allow firms to produce more output using the same amount of inputs.
• How has the introduction of robotics and artificial intelligence in manufacturing affected LRAS?

  Expanded the LRAS
• New technologies shift the LRAS curve to the right because firms can produce more output with the same inputs.

  True
• What determines an economy's LRAS in the long run?

  Fundamental resources and technology
• Improved education and training of the workforce increase labor productivity and shift LRAS to the right.


  True
• What does the LRAS curve signify about output at full employment?

  Fixed output regardless of price
• The discovery of new oil or mineral deposits expands the availability of land resources, shifting LRAS rightward.
• How do technological advancements enhance LRAS?

  Increase productive capacity
• Technological advancements can lead to faster and more significant increases in LRAS compared to resource availability.


  True
• Match the aspects of institutional changes with their impacts on LRAS:

  Legal System ↔️ Increases business confidence, encourages investment

  Regulatory Environment ↔️ Reduces compliance costs, promotes innovation

  Property Rights ↔️ Incentivizes long-term investment
• The efficiency and transparency of regulations in a regulatory environment reduce compliance costs
• Improvements in the legal system that make contracts easier to enforce can shift the LRAS curve to the right.


  True
• What are institutional changes defined as?

  Shifts in legal systems
• What does human capital refer to in the context of LRAS?

  Knowledge, skills, and abilities
• How does lifelong learning contribute to LRAS?

  Maintains an adaptable workforce
• How does investment in physical capital affect LRAS?

  Higher capital stock boosts productivity
• Technological progress enhances efficiency and output potential, shifting the LRAS curve to the right.

  True
• The introduction of robotics in manufacturing has increased productivity and shifted LRAS to the right.
• What are institutional changes in a country's legal system, regulatory environment, and property rights systems?

  Fundamental shifts
• What is the primary impact of a clear and enforced legal system on LRAS?

  Increases business confidence
• How do secure property rights affect long-term investment and development?

  Incentivize investment
• The impact of institutional changes on LRAS is linked to macroeconomic policies aimed at fostering economic growth
• A clear and enforced legal system reduces business uncertainty and encourages investment.


  True
• Improving access to and quality of education increases labor productivity
• Order the key determinants of LRAS according to their impact on economic growth:

  1️⃣ Capital

  2️⃣ Labor

  3️⃣ Natural Resources

  4️⃣ Technology
• Greater availability of natural resources enables increased production