Macroeconomics
ShiftsoftheLRAScurvearecloselyassociatedwithshiftsinthePPC. RecallthatthePPCshiftswhen there is a change in the economy’s productive capacity . An increase in the economy’s productive capacity increases LRAS and shifts its curve to the right, and vice versa.
The LRAS shifts only when there is a change in the quantity and/or quality of resources . These changes can occur because of the following: ● Discovery of New Resources: Thediscoveryofnewresources,suchasoilfelds,increasesan economy’s productive potential and shifts the LRAS to the right. ● PositiveNetInvestment: Whengrossinvestmentexceedsdepreciation,therewillbeapositive net investment that indicates additions to the capital stock. This increases the economy’s productive capacity, shifting the LRAS curve to the right. ● Net Immigration: When immigrants that enter the country are ofworkingage,thesizeofthe labor force increases. This increases LRAS and shifts its curve to the right. ● AnIncreaseintheRetirementAge: Whentheretirementageisincreased(e.g.,from62to64), the size ofthelaborforceincreases.Thismeansthatmorepeopleareavailabletoworkwhich increases LRAS.
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