Assume that the position of a nation's aggregate demand curve has not changed, but the long-run equilibrium price level has declined. Other things being equal, which of the following factors might account for this event?
a. increase in labor productivity
b. a decrease in the capital stock
c. a decrease in the quantity of money in circulation
d. the discovery of new mineral resources used to produce various goods
e. a technological improvement
Hummmm. I think that a, d, and e could be factors that might account for this event.
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To examine which factor might account for a decline in the long-run equilibrium price level while assuming that the position of a nation's aggregate demand curve has not changed, we can evaluate each of the given options.
a. Increase in labor productivity:
An increase in labor productivity means that workers can produce more output in the same amount of time. This leads to a decrease in production costs. As a result, firms can supply goods at lower prices, which can contribute to a decline in the long-run equilibrium price level.
b. Decrease in the capital stock:
A decrease in the capital stock refers to a reduction in the nation's physical assets like machinery, equipment, and infrastructure. This can lead to a decrease in production capacity and efficiency, which may lead to higher production costs. In this case, a decrease in the capital stock would be unlikely to account for a decline in the long-run equilibrium price level.
c. Decrease in the quantity of money in circulation:
A decrease in the quantity of money in circulation can lead to a decrease in consumer spending and investment, which can reduce aggregate demand. If the position of the aggregate demand curve remains the same, a decrease in the quantity of money in circulation is unlikely to cause a decline in the long-run equilibrium price level.
d. Discovery of new mineral resources:
The discovery of new mineral resources can increase the nation's production capacity and availability of inputs for production. This can lead to lower production costs and contribute to a decline in the long-run equilibrium price level.
e. Technological improvement:
A technological improvement can enhance productivity, efficiency, and cost-effectiveness in production. This can enable firms to supply goods at lower prices, leading to a decline in the long-run equilibrium price level.
Overall, options a (increase in labor productivity), d (discovery of new mineral resources), and e (technological improvement) are the factors that could potentially account for a decline in the long-run equilibrium price level while keeping the position of the aggregate demand curve constant.