Question

Chapter 9 Part 2: Homework Problems Done 9. (Figure: Determining SRAS Shifts 2) Aggregate Output (Q) Which of the following might cause a change in short-run aggregate supply? Unions successfully negotiate higher wages. Consumer incomes decrease. Businesses are increasingly optimistic about the future. Taxes on businesses increase. Start: 4:2S PM Aggregate Price Level (P)

Answer 1

9. The figure shows the rightward shift of the short run aggregate supply, the rightward shift is an increase in the supply. This can be caused by the positive supply shocks, such as the tax deductions, decrease in input prices, etc.... Here this might be due to the increase in the business confidence , when they see profitability in the future the firms obviously would increase the production.

The increase in taxes and the higher wage adds more to the cost of production of the firms and when the cost of production increases the firms cut back their production and this is a leftward shift of the supply curve.

Ans: Business are increasing optimistic about the future.

11. If the full employment occurs at the point 'a' the , so this might be a demand pull inflation. The demand full inflation occurs due to the excessive demand for the goods and service. This is an increase in the aggregate demand and it shown by the rightward shift of the AD curve.

Ans: Demand pull inflation.

16. The rise in the oil price is a negative supply shock which will decrease the short run aggregate supply, this is a leftward shift of the SRAS curve. When the SRAS shifts to the left the price level increases and the real GDP decreases.

Ans: Leftward shift in SRAS 2 :a.

17. This is a long run equilibrium , the long run equilibrium occurs where the short aggregate supply, aggregate demand and the long run aggregate supply intersects each other or equals. '

Ans: 3000; 100.