17. Aggregate Demand and Aggregate Supply Analysis
Long Run Aggregate Supply
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So let's talk about these different factors of production and how they can affect our long run aggregate supply. So we're going to talk about good shifts, right? Things that can can shift it to the right, meaning we'll have more more long run aggregate supply or bad things that can shift it to the left, right? Things that will make it so our economy can't produce as much in the long run. That's a little hard to see. Let me do it in black. Shift right and shift left. Okay? So labor, the amount of labor that we have in our society. What it comes down to with all of these is if there's more of these factors of production, well then we're going to be able to shift to the right. If there's less of them, we're going to have to shift to the left. So, immigration, right? If there's immigration to US to USA, well, we would shift to the right, right? There's more people, more people available to work. It's gonna shift us to the right and the opposite. If people are leaving the USA and I'm just using USA as an example, can be any any country, right? There's going to be less, less available labor and less long run aggregate supply. Less we can possibly produce in our economy, Okay? So the more people there are, simple enough. More people There's more people available to work. How about physical capital? Physical capital, remember this is the amount of factories, the amount of equipment. So you can imagine if there's more factories, that would be a good thing. That would shift us to the right because there's more factories, more productive more productivity that we can get from all of our labor. And less factories, less available physical capital would lead to lower aggregate supply. So when I say we're shifting left or right, let me just go to the graph real quick just to reiterate. Let's say there was immigration to the U. S. They said there's a big influx of immigration to the US. We would shift this curve to the right to a new long run aggregate supply out here. This would be long run aggregate supply 2. Right? This would be 1 and we would shift it to the right, because of one of these underlying factors. Right? So that's what would happen. We would shift it to the right or to the left, but it would still be vertical just like that. So let's go on to the next one here, human capital. So let's say there's free college. Right? Free college education. Well, that makes all of our workers are, more technically savvy. They're smarter. They're able to be more productive when they're working, right? So the more human capital they have, the more productive they're going to be and it's going to shift us to the right. And no education, right? If there's no public education or no education available, well, that's bad. They're not going to be as productive. They're not smart. They're all uneducated people and they're not going to be able to produce as much. Okay? How about natural resources? So natural resources, what if we, you know, find an oil deposit, right? There's find a huge oil deposit and there's brings down the price of oil and there's more natural resources available in the in the economy to be used. Well, then we would shift to the right. What if there's a war and we lose key resources, right? We lose maybe, you know, some Russia invades Alaska and takes away Alaska where we have huge oil deposits and we no longer have it anymore, right? Whatever it might be. Well, if we don't have those, it's going to shift to the left there. Last we have technology here. And you can imagine technology generally only moves one way. So more technology, right? If there's some new sort of technological improvement, well, it's going to shift us to the right And I don't know. Some sort of, like, catastrophic event that, like, destroys the Internet or something. I don't know what could really lower our technology. That's probably not going to come at come up at all. That'd be it's kind of tough to use an example for that. But in general technology, if there's new technology, more available technology, it's going to make people more productive, make things happen quicker and more efficiently and we would shift our long run aggregate supply to the right. Okay? So that's how we are going to deal with long run aggregate supply. Now, let's deal with the short run.
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