How to Graph LRAS Shifts for Economic Growth in AP Macro

📚 Understanding the Long-Run Aggregate Supply (LRAS) Curve

The Long-Run Aggregate Supply (LRAS) curve represents the potential output of an economy when all resources are fully employed. It's a vertical line because, in the long run, output is determined by factors of production (like capital, labor, and technology) and is independent of the price level. Shifts in the LRAS curve illustrate economic growth or decline in potential output.

📈 Graphing LRAS Shifts

To graph LRAS shifts, you'll need a basic aggregate supply and demand (AS/AD) model. The LRAS curve is a vertical line. When economic growth occurs, the LRAS curve shifts to the right. A decrease in potential output shifts the LRAS curve to the left.

• 🌍 Initial Setup: Draw the axes. The vertical axis represents the Price Level (PL), and the horizontal axis represents Real GDP (Y). Draw an initial LRAS curve (LRAS₁) as a vertical line. Also, include an Aggregate Demand (AD) curve and a Short-Run Aggregate Supply (SRAS) curve to find the initial equilibrium.
• ➡️ Rightward Shift (Economic Growth): If there's an increase in resources, technology, or productivity, the LRAS curve shifts to the right. Draw a new LRAS curve (LRAS₂) to the right of LRAS₁. This represents an increase in potential output.
• ⬅️ Leftward Shift (Economic Decline): If there's a decrease in resources (e.g., due to a natural disaster) the LRAS curve shifts to the left. Draw a new LRAS curve (LRAS₂) to the left of LRAS₁. This indicates a decrease in potential output.

عوامل Factors Causing LRAS Shifts

• 🛠️ Technology: Improvements in technology increase productivity and shift the LRAS curve to the right.
• 💼 Capital Stock: An increase in the amount of physical capital (machines, factories) or human capital (education, skills) shifts the LRAS to the right.
• 👨‍🏭 Labor Force: An increase in the size or quality of the labor force (more workers or better skills) shifts the LRAS to the right.
• 🌾 Natural Resources: Discovering new natural resources or improving the efficiency of resource extraction shifts the LRAS to the right. A depletion of resources shifts it left.
• 🏛️ Institutions & Policies: Improvements in legal systems, property rights, and economic policies that promote efficiency can shift the LRAS to the right.

💡 Real-World Examples

• 🇨🇳 China's Economic Growth: China's rapid economic growth over the past few decades has been driven by technological advancements, increased capital investment, and a growing labor force, causing a significant rightward shift in its LRAS curve.
• 🇩🇪 Germany's Reunification: After reunification, Germany faced challenges integrating East Germany's less productive economy, which temporarily shifted the LRAS curve to the left. Investments in infrastructure and technology eventually shifted it back to the right.
• 🇯🇵 Japan's Aging Population: Japan's aging and shrinking population is a factor that could potentially shift its LRAS curve to the left in the long run.

📊 Impact of LRAS Shifts on the Economy

• 📈 Economic Growth: A rightward shift of the LRAS curve indicates economic growth, leading to higher potential output and potentially lower inflation if aggregate demand remains stable.
• 📉 Recession: A leftward shift of the LRAS curve indicates a decrease in potential output, potentially leading to a recession with higher unemployment and possibly higher inflation (stagflation).
• ⚖️ Price Level: The impact on the price level depends on the movement of the Aggregate Demand (AD) curve. If AD increases along with a rightward shift in LRAS, the price level may remain stable or increase slightly. If AD remains constant, the price level will likely decrease.

📝 Conclusion

Understanding how to graph LRAS shifts and the factors that cause them is crucial for comprehending economic growth and potential economic challenges. By remembering the factors of production and how they influence potential output, you can effectively analyze and predict long-run economic trends. Good luck with your AP Macro exam! 👍