Question

explain how each of the following will affect long-run aggregate supply. (a) a increase in the labor force participation rate (b) a decrease in the government deficit following a reduction in personal income taxes (c) an increase in availability of natural and renewable resources (d) a decrease in the quantity and quality of education (e) a decrease in the rate of savings by households explain how each of the following will affect long-run aggregate supply. (a) a increase in the labor force participation rate (b) a decrease in the government deficit following a reduction in personal income taxes (c) an increase in availability of natural and renewable resources (d) a decrease in the quantity and quality of education (e) a decrease in the rate of savings by households

Answer 1

a. Reduce (or shift leftward) the long-run aggregate supply, since there will be a lower level of employment in the economy.

b. The higher interest rates will lower investment spending and hence the capital stock. A lower capital stock leads to a decrease in long-run aggregate supply.

c. The economy is experiencing greater productivity which increases long-run aggregate supply.

d. Will lead to a more productive work force, increasing long-run aggregate supply.

e. Will lead to more investment spending for capital goods. Increased capital leads to an increase in the long-run aggregate supply.

I hope this helps!