In your Russia example, the inward shift of the SRAS curve create Stagflation in the short-run. Would the government just let the LRAS shift inward as well or would they try and stimulate aggregate demand to try and boost real GDP?
In the exaples reasons for long run economic growth were always related to a increase in aggregated supply. Are there cases / examples where increased aggregated demand leads to long run economic growth?
No, aggregate demand is not sufficient to sustain long term economic growth, because if you think about it, demand increase, firms will need to produce more, to do this they need to hire more labour and acquire more capital stock and don’t forget the all important land. Land is fixed in the short run and long run, there is no way to acquire more land. So if you continuously increase capital stock and increase labourers, sooner or later diminishing returns to scale will kick in, reaching a steady state of no economic growth. At first maybe when capital per worker is low, adding more capital will increase output, but sooner or later it will cease to affect output. the same is true for labour. If you increase both labour and capital, because land is fixed, where will you put them? No doubt national output will Increase in the short run, but it will cease to grow and the economy will reach a steady state of no economic growth. To achieve economic growth there needs to a continuous increase in potential output (the economy’s capacity to produce), given capital stock. Hope this helps
