An increase in the money wage rate decreases aggregate supply and shifts the aggregate supply curve leftward. A fall in the money wage rate lowers firms' costs and shifts the aggregate supply curve rightward. Does a rise in the price level bring a movement along the aggregate supply curve or does it shift the aggregate supply curve?

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The answer to this depends on how, exactly, you are using the term “price level.”  If you are talking about prices in the economy as a whole, the price level causes a movement along the aggregate supply (AS) curve.  If you are talking about the price of labor and other...

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The answer to this depends on how, exactly, you are using the term “price level.”  If you are talking about prices in the economy as a whole, the price level causes a movement along the aggregate supply (AS) curve.  If you are talking about the price of labor and other resources that go into producing goods and services, the price level causes the AS curve to shift.

The AS curve shows what level of output an economy can produce at any given price level.  This means that the horizontal axis is measured in units of real Gross Domestic Product while the vertical axis shows the price level (GDP deflator) for the economy as a whole.  Given this information, we can see that when the prices in the economy as a whole change (when the GDP deflator changes), we are just moving along a given AS curve.

However, the price level of resources is something that will cause the AS curve to shift.  It is one of the major determinants of aggregate supply.  When the price of resources like labor or oil changes, the amount that producers are willing and able to produce changes as well.  This stands to reason because a manufacturer who has to pay more for labor and other resources will not make as much profit and will therefore not want to produce as many goods or services.  Please note, however, that this only applies to the short-run AS curve.  In the long run, resource prices do not affect the AS curve.

The most likely answer here is that the price level causes a movement along the AS curve because “price level” usually refers to the GDP deflator or other measures of general prices in an economy.  However, if you are using “price level” to refer to the price of resources, it can cause a shift in the short run AS curve.

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