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Chapter 12: Q4. (page 259)

Which of the following will shift the aggregate supply curve to the right?

  1. A new networking technology increases productivity all over the economy.

  2. The price of oil rises substantially.

  3. Business taxes fall.

  4. The government passes a law doubling all manufacturing wages.

Short Answer

Expert verified

Options (a) and (b) will result in a rightward shift in the aggregate supply curve.

Step by step solution

01

Explanation for part (a)

The new networking technology will increase the productivity of the economy. Thus the production at the same input prices will increase. As a result, the aggregate supply curve will shift to the right.

02

Explanation for part (b)

Since the oil is imported in the U.S. in bulk, increasing the price of resource inputs will raise the production cost. High production costs will reduce the aggregate supply at the then input prices. Therefore, the aggregate supply curve will shift to the left.

03

Explanation for part (c)

A fall in business taxes decreases the per-unit production costs. Lower production costs will increase the aggregate supply in the economy. The aggregate supply curve will shift to the right.

04

Explanation for part (d)

The major production cost for any firm is wages. Doubling wages will increase production costs severely. Higher production costs will result in lower aggregate production. Thus, the aggregate supply curve will shift to the left.

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Most popular questions from this chapter

Distinguish between "real-balances effect" and "wealth effect," as the terms are used in this chapter. How does each relate to the aggregate demand curve?

Use shifts of the AD and AS curves to explain (a) the U.S. experience of strong economic growth, full employment, and price stability in the late 1990s and early 2000s and (b) how a strong negative wealth effect from, say, a precipitous drop in house prices could cause a recession even though productivity is surging.

Refer to the data in the table that accompanies problem 2. Suppose that the present equilibrium price level and level of real GDP are 100 and \(225, and that data set B represents the relevant aggregate supply schedule for the economy.

(A)(B)(C)
Price LevelReal GDPPrice LevelReal GDPPrice LevelReal GDP
110275100200110225
100250100225100225
9522510025095225
9020010027590225
  1. What must be the current amount of real output demanded at the 100 price level?
  2. If the amount of output demanded declined by \)25 at the 100 price level shown in B, what would be the new equilibrium real GDP? In business cycle terminology, what would economists call this change in real GDP?

Label each of the following descriptions as being either an immediate-short-run aggregate supply curve, a short-run aggregate supply curve, or a long-run aggregate supply curve.

  1. A vertical line.

  2. The price level is fixed.

  3. Output prices are flexible, but input prices are fixed.

  4. A horizontal line.

  5. An upsloping curve.

  6. Output is fixed.

What assumptions cause the immediate-short-run aggregate supply curve to be horizontal? Why is the long-run aggregate supply curve vertical? Explain the shape of the short-run aggregate supply curve. Why is the short-run curve relatively flat to the left of the full-employment output and relatively steep to the right?
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