Question
secular deflation will cause a one time or continuous shift on the AD or LRAS?
Answers
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Secular deflation refers to a sustained, long-term decrease in the general price level of goods and services. This can have several effects on the economy, including a shift in the Aggregate Demand (AD) curve or the Long-Run Aggregate Supply (LRAS) curve.
If secular deflation occurs, meaning the decrease in prices is persistent, it can lead to a decrease in consumer spending and investment. As the cost of goods and services decline, consumers and businesses may delay purchases, anticipating even lower prices in the future. This reduction in spending can cause a decrease in aggregate demand, shifting the AD curve to the left.
Furthermore, secular deflation can also impact the LRAS curve. In the long run, the LRAS curve represents the economy's potential output, assuming full employment and productive efficiency. If deflation becomes persistent, it can lead to reduced profitability and a decrease in business investment. This can result in the LRAS curve shifting to the left due to decreased productivity and potential output.
It's important to note that the impact of secular deflation on AD and LRAS may depend on other factors as well, such as monetary policy, fiscal policy, and overall economic conditions. Additionally, the specific effects can vary depending on the magnitude and duration of the deflationary pressure.
If secular deflation occurs, meaning the decrease in prices is persistent, it can lead to a decrease in consumer spending and investment. As the cost of goods and services decline, consumers and businesses may delay purchases, anticipating even lower prices in the future. This reduction in spending can cause a decrease in aggregate demand, shifting the AD curve to the left.
Furthermore, secular deflation can also impact the LRAS curve. In the long run, the LRAS curve represents the economy's potential output, assuming full employment and productive efficiency. If deflation becomes persistent, it can lead to reduced profitability and a decrease in business investment. This can result in the LRAS curve shifting to the left due to decreased productivity and potential output.
It's important to note that the impact of secular deflation on AD and LRAS may depend on other factors as well, such as monetary policy, fiscal policy, and overall economic conditions. Additionally, the specific effects can vary depending on the magnitude and duration of the deflationary pressure.