Chapter 10, Problem 10.1LO

To determine

The concept of long run aggregate supply curve and the effects of economic growth on the long-run aggregate supply curve.

Explanation of Solution

Long-run aggregate supply curve represents the total amount of goods and services supplied in the economy in a given period of time. The long-run aggregate supply curve is vertical at full-employment level. This means that in the long-run the firms will operate at full capacity. The equation for long-run aggregate supply curve is given by.

$Y=Y^{*}$.

Where,

$Y^{*}$ is the full employment output.

While, economic growth refers to the growth in the output of economy overtime. Increase in economic growth will therefore result in a rightward shift in the long-run aggregate supply curve from LRAS1 to LRAS2.

Y=Y^..

Economics Concept Introduction

Introduction:

Economic growth rate refers to the rate at which the output of an economy increases overtime. It is used as an indicator of economic well-being of a nation. Economic growth is used as the most powerful instrument for reducing poverty and improving the standard of living of the residents of a country.