Multiple Choice
Which of the following would cause the short-run aggregate supply (SRAS) curve to decrease (shift to the left)?
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16. Aggregate Demand and Aggregate Supply Analysis
Shifting Short Run Aggregate Supply
Multiple Choice
Which of the following causes the short-run aggregate supply (SRAS) curve to shift to the right?
A
An increase in business taxes
B
A decrease in productivity
C
A decrease in input prices, such as wages or raw materials
D
An increase in the expected price level
Verified step by step guidance1
Step 1: Understand what the short-run aggregate supply (SRAS) curve represents. The SRAS curve shows the relationship between the price level and the quantity of goods and services that firms are willing to produce in the short run, holding other factors constant.
Step 2: Recall that the SRAS curve shifts when there is a change in production costs or supply-side factors, other than the price level itself. Factors that reduce production costs tend to shift the SRAS curve to the right, indicating an increase in aggregate supply.
Step 3: Analyze each option in terms of its effect on production costs: an increase in business taxes raises costs, shifting SRAS left; a decrease in productivity means firms produce less efficiently, shifting SRAS left; a decrease in input prices (like wages or raw materials) lowers production costs, shifting SRAS right; an increase in the expected price level typically shifts SRAS left because firms expect higher costs.
Step 4: Conclude that a decrease in input prices reduces firms' costs, enabling them to supply more at every price level, which causes the SRAS curve to shift to the right.
Step 5: Summarize that the correct cause for a rightward shift in the SRAS curve is a decrease in input prices, such as wages or raw materials, because it lowers production costs and increases aggregate supply in the short run.
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