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Chapter 24: Q 28. (page 602)

Will the shift of SRAS to the right tend to make the equilibrium quantity and price level higher or lower? What about a shift of SRAS to the left?

Short Answer

Expert verified

There are varied reasons for this shift in the SRAS curve.

Step by step solution

01

Step 1. Definition

The SRAS (short-run aggregate supply) curve is a curve that shows that if there is an increase in price level and you will be moving along the SRAS, there will be an increase in the amount of real GDP which will be produced in an economy.

02

Step 2. Explanation

Suppose that the aggregate demand remains constant, so when an SRAS curve will shift to the right it will have an optimistic effect on the real GDP and a pessimistic effect on the price level. To put it in another way is that this rightward shift will increase the real GDP and have a downward pressure on the price level, leading to an equilibrium point.

03

Step 3. Supplementary information

While in a shift to the left of the SRAS curve given that the aggregate demand is constant, it will have a decline in the quantity of output produced and lead to the increased price level. This will lead to an equilibrium point.

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Most popular questions from this chapter

Describe the mechanism by which supply creates its own demand.

Briefly explain the reason for the near-horizontal shape of the SRAS curve on its far left.

How is cyclical unemployment illustrated in an AD/AS model?

On a microeconomic demand curve, a decrease in price causes an increase in quantity demanded because the product in question is now relatively less expensive than substitute products. Explain why aggregate demand does not increase for the same reason in response to a decrease in the aggregate price level. In other words, what causes total spending to increase if it is not because goods are now cheaper?

Briefly explain the reason for the near-vertical shape of the SRAS curve on its far right.
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