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Long-Run Economic Growth is the sustainable shift of the LRAS to the right.

Source: Szwajcar

🧐Notice how both the AD & AS curve move to the right. This is what makes it sustainable. 

The caption below shows one of three possible ways that encourage long-run economic growth.

The 3 Sources of Long-Run Economic Growth

  • Human Capital: Education is a big factor, quality & quantity of labor force
  • Technology: complex tools
  • Physical Capital: new resources found

So now that you know the 3 sources of long-run economic growth, draw them out using an AD/AS graph and explain all the steps that lead to long run economic growth.

Practice Problem (answer at bottom):

Assume an economy is in long run equilibrium.

a) Draw the aggregate demand and supply graph for this economy initially

Assume that factories suddenly lose 50% of their machinery due to a mass recall of all conveyor belts

b) On your graph in part (a), show the impact of this loss in machinery on the long run economic condition of the economy.

Source: Tenor

Answer to Practice Problem:
Part (a):

Part (b) [on graph of part a]

  • Graph should show a leftward shift in both SRAS and AD, leading to a leftward shift in LRAS leading to a lower real output in the long run
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