The other is a change in technology In addition there may be shifts in

The other is a change in technology in addition there

This preview shows page 94 - 96 out of 131 pages.

increase or decrease in the amount of productive resources available. The other is a change in technology. In addition, there may be shifts in aggregate supply due to special factors such as political scandals, wars, terrorist attacks, or natural disasters, such as Hurricane Katrina in 2005 or the Great East Japan earthquake of 2011. Except for wars, most of these shocks are fairly short-term or localized in their effects. Hurricane Katrina h ad a devastating impact on Louisiana and the Gulf Coast economy for several years, but relatively little impact on the national economy and a relatively small long-term impact.
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Policy actions can also affect aggregate supply. Remember, the goal of a firm is to make a profit. When tax laws or other regulations change, they affect the profitability of firms and their willingness to supply output at all price levels. Tax policies can have an impact on both aggregate supply and aggregate demand, although in different ways. Tax breaks that stimulate spending on new capital, development of new capital, or investment in worker training will all shift AS to the right. Policies that reduce interest rates make it easier for firms to borrow and invest in new capital, increasing productivity and shifting AS to the right. Policies that drive up interest rates have the opposite effect. Resource Availability The United States has seen some significant changes in the size, makeup, and skills of the labor force over the last 50 years. More women working outside the home, the baby-boom generation hitting retirement age, and a change in the level and mix of immigrants have combined to create a very different kind of labor force. The size of the labor force is now a larger fraction of the total population because the share of the population that is in the labor force has risen from 59% in 1960 to 67% in 2009 (Bureau of Labor Statistics, 2012). In addition, the human capital that those workers bring to the job has changed due to an increase in the level of educational attainment. Adding additional workers or more productive workers (workers with more skills or human capital) will shift AS to the right. A decline in labor force participation, or a lower average level of skill and experience, will shift it to the left. A second important resource is capital, which comes from the accumulation over time of savings that is invested in plant and equipment. Typically, about 18% of GDP goes into private-sector investment—some for replacement, the rest for new equipment and facilities, including not only factories but also housing, shopping malls, and office buildings. An increase in the stock of capital makes workers more productive and shifts AS to the right. However, if capital is not replaced as it ages or wears out, AS could shift to the left. Changes in Technology A change in the methods of production can shift AS to the right. Most people are familiar with such innovations as industrial robots that increase the productivity of existing resources. Other changes are often less visible but can still have an impact on the productivity of labor and capital.
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