Macroeconomics
● AnIncreaseintheNumberofWomenJoiningtheLaborForce: Asmorewomenjointhelabor market, the economy’s productive capacity increases since labor, as a factor of production, increases. This results in a rightward shift of the LRAS curve. ● LandReclamation: Thisreferstothecreationofnewlandfromthesea.Asaresult,land,asa factorofproduction,increases.ThisalsoincreasesLRAS. Forinstance,inrecentyears,Dubaihas added to its land area by building hotels, apartments, parks, and other infrastructure on land reclaimed from the sea. Note that since a change in the price level does not affect output in the long run, unemployment is unaffected too (recall thatintheshortrun,unemploymentdecreaseswithanincreaseinoutput).This means that there is no trade-off between inflationand unemployment in the long run . The Keynesian AS Curve Mosteconomicschoolsofthoughtagreeonthedeterminantsandshapeoftheaggregatedemandcurve. However, there are debates regarding the aggregate supply curve. We’ve already seen that New Classicals illustrate LRAS using a vertical line. However, a group of economistsknownasKeynesiansoftenrepresenttheLRAScurveinthreephaseslabeledasA,B,andC in the diagram below.
UnlikeNewClassicals,Keynesiansbelievethat,inthelongrun, aneconomycanoperateatanylevelof output and not necessarily at full capacity . Theydivide the AS curve into three phases: 1. TheflatorhorizontalpartoftheAScurve(partAinthepreviousdiagram): Whenoutputand hence employment are low, LRAS is perfectly elastic. This means thatthereissparecapacity that allowsproducerstoincreaseoutputwithoutincurringhighercosts(frmscanattractmore
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