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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