|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
10-12. Explain whether each of the following events
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