Question

Describe whether the following changes cause the long-run aggregate supply to increase, decrease, or neither.

Natural resources increase.

Answer 1

An increase in natural resources would cause the long-run aggregate supply (LRAS) to increase in the neoclassical model.

Step-by-step explanation:

In the neoclassical model, an increase in natural resources would cause the long-run aggregate supply (LRAS) to increase.

When natural resources increase, it leads to a higher potential output in an economy. This means that an economy can produce more goods and services in the long run. As a result, the LRAS curve shifts to the right.

For example, if a country discovers new oil reserves, it can increase its oil production and export. This would lead to an increase in the LRAS and potentially higher economic growth.