Question

Show five determinants which causes long-run aggregate supply curve to shift. Explain.

Answer 1

The first determinant is the technological development. When technological advancements take place, then LRAS shifts to the right and economy expands. The second determinant is the capital stock in the economy. With decrease in capital stock, LRAS shifts to the left and vice versa. It is the reason that natural disasters, destroying factories, causes LRAS to decrease. The third determinant is the productivity. A higher productivity, leads to more output with the given resources, and LRAS shifts to the right. The fourth determinant is capacity building. an increase in capacity via investments, increases the LRAS and shifts to the right and vice versa. The fifth determinant is changing human resources and their human capital development. With increase in such resources, LRAS shifts to the right.