10-12. Explain whether each of the following events

10-12. Explain whether each of the following events

10-12. Explain whether each of the following events
would cause a movement along or a shift in the
position of the LRAS curve, other things being
equal. In each case, explain the direction of the
movement along the curve or shift in its position.
(See page 212.)
a. Last year, businesses invested in new capital
equipment, so this year the nation’s capital
stock is higher than it was last year.
higher investment translates into higher AD.
this does not affect LRAS as the investment is not sutained, but a one time/periodevent.
so we move along LRAS in upward direction
b. There has been an 8 percent increase in the
quantity of money in circulation that has
shifted the AD curve.
this will not affect LRAS position . It only causes prices to rise by the full maount of rise in money supply
this can be seen as a movement along the LRAS curve in upward direction
c. A hurricane of unprecedented strength has
damaged oil rigs, factories, and ports all along
the nation’s coast.
this impliesa loss of resources. This lossof natural resources is permananet so LRAS will fall.
this is shown asa left shift of LRAS curve- movement OF the curve.
d. Inflation has occurred during the past year as a
result of rightward shifts of the AD curve.
this has no impact on LRAS unless inflation is sustained in long run.
A one time rise in AD does not affect LRAS position.
We only move along the curve in upward direction

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