IAI Actuarial Core Principles · Business Economics · Business activity, unemployment and inflation
Which of the following would shift the long-run aggregate supply curve to the right, increasing the economy's potential output?
A sustained improvement in the skills and education of the workforce shifts long-run aggregate supply right, because it raises productivity and potential output. Transfer payments, lower interest rates, higher confidence and a temporary exchange rate move mainly affect aggregate demand, not capacity.
- AA temporary fall in the exchange rate
- BA one-off increase in government transfer payments
- CA sustained improvement in education and skills of the workforceCorrect
- DA cut in the repo rate that boosts consumer borrowing
- A rise in consumer confidence
Explanation
Long-run aggregate supply depends on productive capacity: quantity and quality of labour, capital and technology. Better education raises productivity and potential output. The other options mainly affect aggregate demand.
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