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Chapter 20: Problem 12

Other factors held constant, a decrease in resource prices will shift the aggregate a. demand curve leftward. b. demand curve rightward. c. supply curve leftward. d. supply curve rightward.

Short Answer

Expert verified
A decrease in resource prices will shift the aggregate supply curve rightward, as businesses can produce more goods and services at lower costs. The correct answer choice is (d) supply curve rightward.

Step by step solution

01

Understand aggregate demand and supply curves

The aggregate demand curve shows the relationship between the price level and the quantity of goods and services demanded in an economy. The aggregate supply curve shows the relationship between the price level and the quantity of goods and services supplied in an economy.
02

Determine how resource prices affect aggregate supply and demand curves

Resource prices are directly related to the cost of producing goods and services. When resource prices decrease, the cost of production for businesses also decreases. As a result, businesses can produce more goods and services at lower costs, which increases their willingness to supply goods and services. This will affect the aggregate supply curve.
03

Determine the direction of the shift in the aggregate supply curve

Since businesses can now produce more goods and services at lower costs, the aggregate supply curve will shift rightward, because the quantities of goods and services supplied at each price level have increased.
04

Select the correct answer choice

Option (d) supply curve rightward is the correct answer choice, as a decrease in resource prices will lead to a rightward shift in the aggregate supply curve.

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Most popular questions from this chapter

The real balances effect occurs because a higher price level reduces the real value of people's a. financial assets. b. wages. c. unpaid debt. d. physical investments.

Classical economists believed that the a. price system was stable. b. goal of full employment was impossible. c. price system automatically adjusts the economy to full employment in the long run. d. government should attempt to restore full employment.

The aggregate demand curve is defined as the a. net national product. b. sum of wages, rent, interest, and profits. c. real GDP purchased at different possible price levels. d. total dollar value of household expectations.

When the supply of credit is fixed, an increase in the price level stimulates the demand for credit, which, in turn, reduces consumption and investment spending. This effect is called the a. real balances effect. b. interest-rate effect. c. net exports effect. d. substitution effect.

Macroeconomic equilibrium occurs when a. aggregate supply exceeds aggregate demand. b. the economy is at full employment. c. aggregate demand equals aggregate supply. d. aggregate demand equals the average price level.
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