Question

Indicate whether the scenarios would result in an increase, a decrease, or no change in the long-run aggregate supply (LRAS) curve for a hypothetical economy. Each label may be used more than once.

The mandatory retirement age is abolished.
The economy's main export is candy.
Candy from this country increases in popularity around the world.
Since candy has become an international sensation, factories double the number of candy-making machines.
The top candy companies choose to relocate their means of production to other countries around the world.

Answer 1

The mandatory retirement age is abolished.

• This will result in an Increase in the long-run aggregate supply (LRAS) curve because it means that companies in the economy now have a larger workforce to choose from. This will reduce the cost of labor and lead to more goods being supplied.

The economy's main export is candy. Candy from this country increases in popularity around the world.

• No effect on long-run aggregate supply (LRAS) curve because this deals with demand.

Since candy has become an international sensation, factories double the number of candy-making machines.

• Factories are now producing more candy due to having more candy-making machines. This will result in an Increase in the long-run aggregate supply (LRAS) curve.

The top candy companies choose to relocate their means of production to other countries around the world.

• The companies are still supplying candy to the world, however they are doing it from other countries. This supply coming from the hypothetical economy will therefore reduce. This will result in a Decrease in the long-run aggregate supply (LRAS) curve.