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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Let labor be the variable shown on the horizontal axis and Real GDP on the vertical axis. Suppose there is a rise in labor. Does the rise lead to a movement along the production function or to a shift in the production function? Explain your answer. Next, draw the change in the LRAS curve that results from a rise in labor.

To determine

Movements of rise in labor along the production function and thereby change in the Long Run Aggregate Supply (LRAS) curve.

Explanation

Figure 1 shows the movement along the production function in the labor market and thereby shift in the LRAS curve.

Figure 1

In Panel (a), the horizontal axis indicates the number of labors and vertical axis indicates the real GDP. Production function shows the output or real GDP, which depends on inputs such as labor (L), capital (K), and technological coefficient. In Panel (a), the number of labor employed increases from L1 to L2...

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