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Which of the following will shift the short run aggregate supply curve? a. households...

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armyof32000 | (Level 1) Salutatorian

Posted July 23, 2013 at 2:43 PM via web

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Which of the following will shift the short run aggregate supply curve?

a. households decide to save a smaller share of their disposable income.

b. There is an 8-week strike in the steel industry.

c. a drought in the midwest causes a poor wheat harvest.

d. The labor force particpation rate increases.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted July 23, 2013 at 3:29 PM (Answer #1)

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Of these options, all but the first is likely to shift the short run aggregate supply (SRAS) curve.  The first option might change the long-run aggregate supply curve and will also affect aggregated demand, but it should not have any impact on SRAS.

Options B and C will cause the SRAS curve to shift inward.  That is, it will reduce the level of SRAS.  In Option B, there will, in essence, be fewer workers.  This will make it so that less steel can be produced.  A lack of steel will reduce production of things like cars and refrigerators that are made from steel.  Option C will reduce the amount of wheat that is supplied.  This will, just by itself, reduce the level of SRAS.

Option D, by contrast, will increase SRAS.  This is because it will create a situation in which there are more workers.  If there are more workers, working more hours, the economy can produce more things.  When the economy starts to produce more things, SRAS increases and the SRAS curve shifts outward.

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