Sustainability of Growth: Understanding the Role of Long Run Aggregate Supply Curve

The video tutorial discusses the sustainability of economic growth, emphasizing that permanent changes in real output are only achieved by shifts in the long run aggregate supply curve. It analyzes the effects of demand and supply side shocks on equilibrium, highlighting that without a shift in long run aggregate supply, any growth or decline is temporary. The tutorial uses methodical analysis to ensure a robust understanding of these concepts, preparing students for examinations.

What is the key factor for achieving permanent changes in real output?

• Shifts in short run aggregate supply

• Increases in aggregate demand

• Decreases in production costs

• Shifts in long run aggregate supply

What is the immediate effect of a large tax cut on aggregate demand?

• Decrease in aggregate supply

• No change in aggregate demand

• Outward shift in aggregate demand

• Inward shift in aggregate demand

Why is the growth from a demand side shock like a tax cut considered unsustainable?

• Because it leads to a permanent increase in prices

• Because it does not affect the long run aggregate supply

• Because it reduces consumption

• Because it increases unemployment

What happens to the economy when there is a sudden increase in taxes?

• It results in a decrease in unemployment

• It creates a positive output gap

• It leads to a negative output gap

• It causes a permanent increase in real output

How does a negative demand side shock affect production costs?

• Leads to a permanent increase in production costs

• Increases production costs

• Has no effect on production costs

• Decreases production costs

What is the effect of a positive supply side shock, such as a reduction in oil prices?

• Inward shift in short run aggregate supply

• Outward shift in short run aggregate supply

• Increase in unemployment

• No change in aggregate supply

Why are changes from supply side shocks considered temporary?

• Because they lead to a permanent decrease in prices

• Because they permanently increase real output

• Because they do not affect aggregate demand

• Because they do not shift the long run aggregate supply