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Chapter 24: Problem 4

What variables cause the short-run aggregate supply curve to shift? For each variable, identify whether an increase in that variable will cause the short- run aggregate supply curve to shift to the right or to the left.

Short Answer

Expert verified
Variables that can shift the SRAS curve include resource prices, technological change, and supply shocks. An increase in resource prices or adverse supply shock moves it to the left, while efficiency improvements in technology shift it to the right.

Step by step solution

01

Understanding the SRAS Curve

The Short-Run Aggregate Supply curve, or SRAS curve, depicts the total quantity of goods produced by firms at different price levels in the short-run. It is upward sloping, meaning it shows that as prices for outputs rise, firms tend to supply more of their goods.
02

Identifying Variables Affecting the SRAS Curve

There are several variables which can cause the SRAS to shift, such as resource prices (including wages), technological change, and supply shocks like natural disasters or changes in the legal or regulatory environment.
03

Predicting Direction of Shift Based on Increase in Variables

An increase in resource prices or an adverse supply shock (like a natural disaster) would cause the SRAS curve to shift to the left, as it becomes more costly to produce goods so firms supply less. Conversely, an increase in technological efficiency leads to lower costs of production, causing the SRAS curve to shift to the right as firms can supply more at every price level.

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Most popular questions from this chapter

In \(2017,\) an article in the Wall Street Journal discussing the latest data on U.S. net exports noted that, along with other currencies, "the [Chinese] yuan has risen this year against the dollar." The article also noted that there had been "stronger [economic] growth in Asia and Europe." a. What does the article mean by noting that the yuan had "risen" against the dollar? b. Briefly explain whether the combination of other currencies rising against the dollar and stronger economic growth in Asia and Europe had led to an increase or a decrease in U.S. net exports. c. Will the outcome you discuss in part (b) result in a movement along the U.S. aggregate demand curve or a shift of the curve? Briefly explain.

Suppose the economy enters a recession. If government policymakers- Congress, the president, and members of the Federal Reserve -do not take any policy actions in response to the recession, which of the alternatives listed below is the likely result? Be sure to carefully explain why you chose the answer you did. 1\. The unemployment rate will rise and remain higher even in the long run, and real GDP will drop below potential GDP and remain lower than potential GDP in the long run. 2\. The unemployment rate will rise in the short run but return to the natural rate of unemployment in the long run, and real GDP will drop below potential GDP in the short run but return to potential GDP in the long run. 3\. The unemployment rate will rise and remain higher even in the long run, and real GDP will drop below potential GDP in the short run but return to potential GDP in the long run. 4\. The unemployment rate will rise in the short run but return to the natural rate of unemployment in the long run, and real GDP will drop below potential GDP in the short run and remain lower than potential GDP in the long run.

Explain whether you agree with the following statement: The dynamic aggregate demand and aggregate supply model predicts that a recession caused by a decline in \(A D\) will cause the inflation rate to fall. I know that the \(2007-2009\) recession was caused by a fall in \(A D,\) but the inflation rate was not lower as a result of the recession. The prices of most products were definitely higher in 2008 than they were in 2007 , so the inflation rate could not have fallen.

Briefly explain how each of the following events would affect the long-run aggregate supply curve. a. A higher price level b. An increase in the labor force c. An increase in the quantity of capital goods d. Technological change

Explain why the long-run aggregate supply curve is vertical.
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