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Determine whether each of the following, other things held constant, would lead to an increase, a decrease, or no change in long-run aggregate supply:

a. An improvement in technology
b. A permanent decrease in the size of the capital stock
c. An increase in the actual price level
d. An increase in the expected price level
e. A permanent increase in the size of the labor force

Explain the difference between the government purchases multiplier and the net tax multiplier. If the MPC falls, what happens to the tax multiplier?

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Q: Determine whether each of the following, other things held constant, would lead to an increase, a decrease, or no change in long-run aggregate supply:

a. An improvement in technology ------- INCREASE

Correct because the cost of production decreases

b. A permanent decrease in the size of the capital stock ------DECREASE

Correct, it represents a smaller base for the means of production so, presumably, output would be restricted (if it were already at supply capacity).

c. An increase in the actual price level -------INCREASE

* Although its not technically correct to look at this in isolation, typically an increase in actual price will INCREASE agg supply. One way to explain this is that an increase in price represents an increase in the marginal ...

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