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Change in LRAS

Definition

A change in LRAS represents a long-term shift or movement of the long-run aggregate supply curve caused by factors such as improvements in technology, population growth, education levels, infrastructure development, or changes in institutional frameworks.

Analogy

Imagine a city expanding its subway system to connect more neighborhoods effectively. This improvement allows workers from previously inaccessible areas to commute easily to various job opportunities across town. The change represents an expansion of LRAS as it enables more people with diverse skills to participate fully in economic activities.

Related terms

Technological Advancements: Technological advancements refer to improvements and innovations in production techniques, machinery, or processes that can lead to an increase in LRAS.

Human Capital: Human capital refers to the knowledge, skills, education, training, and experience possessed by individuals within a workforce. Enhancing human capital can positively impact LRAS.

Government Policies: Government policies such as investments in infrastructure development or initiatives promoting research and development can influence LRAS by fostering long-term economic growth.