Based on the graphs, 1. What might be a likely explanation for a shift in (B)? 2
ID: 1156853 • Letter: B
Question
Based on the graphs,
1. What might be a likely explanation for a shift in (B)?
2. What might cause a shift in (A)?
3. Which diagram shows impact of the following policy or event?
a. an increase in government spending on healthcare
b. a decrease in government spending
c. an increase in business subsidies
d. new or tighter business regulation
e. an increase in consumer wealth as housing prices rise
f. a rise in productivity due to technology
AS AS1 0 AD AD Real domestic output Rel domestic output AD AD Real domestic output Rl domestic outputExplanation / Answer
1) In graph B, AS curve shifts to the left from AS1 to AS2. That is supply is decreased. It may be because of some natural disaster, or an increase of cost of production.
2) In graph A, AS curve shifts to the right from AS1 to AS2. That is supply is increased. It may be because of technological advancement, a decrease of cost of production.
3) a) aggregate demand will be increased by an increase in government spending on healthcare. AD curve shifts to the right. Graph C represents this.
b) aggregate demand will be decreased by a decrease in government spending. AD curve shifts to the left. Graph D represents this.
c) an increase in business subsidies results in increasing supply. AS curve shifts to the right. Graph A represents this.
d) new or tighter business regulation results in decrease supply. AS curve shifts to the left. Graph B represents this.
e) An increase in the consumer wealth increases the demand. So AD curve shifts to the right. Graph C represents this.
f) A rise in productivity due to technology increase aggregate supply. So AS curve shifts to the right. Graph A represents this.
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