Economic Growth and LRAS- Macro Topic 5.6

Mr. Clifford discusses economic growth using aggregate demand and supply concepts. He reviews previous lessons on recessionary and inflationary gaps, and explains how decreased interest rates affect investment and aggregate demand in the short run, leading to an inflationary gap. In the long run, increased investment results in more capital stock, shifting aggregate supply and long-run aggregate supply to the right, indicating economic growth. He clarifies when aggregate supply shifts back to the left, emphasizing the role of investment in long-term growth.

What factors can lead to a shift in the long run aggregate supply?

Describe the impact of government spending on aggregate demand and its long-term effects.