For each of the following scenarios, determine the effect on aggregate supply. a
ID: 2496090 • Letter: F
Question
For each of the following scenarios, determine the effect on aggregate supply.
a. There is an unexpected decrease in oil prices.
___ This will cause a movement along the aggregate supply curve to the left, showing a decrease in the quantity of real GDP supplied.
___ This will cause a decrease in aggregate supply, shifting the aggregate supply curve to the left.
___ This will cause an increase in aggregate supply, shifting the aggregate supply curve to the right.
___ This will cause a movement along the aggregate supply curve to the right, showing an increase in the quantity of real GDP supplied.
b. Suppose the government increases the amount that all producers are required to contribute to health insurance coverage
___ This will cause a movement along the aggregate supply curve to the right, showing an increase in the quantity of real GDP supplied.
___ This will cause a decrease in aggregate supply, shifting the aggregate supply curve to the left.
___ This will cause a movement along the aggregate supply curve to the left, showing a decrease in the quantity of real GDP supplied.
___ This will cause an increase in aggregate supply, shifting the aggregate supply curve to the right.
Explanation / Answer
Ans. (A) There is an unexpected decrease in oil prices, then This will cause an increase in aggregate supply, shifting the aggregate supply curve to the right. As the cost of production decreases, so the AS curve moves to right. (Positive supply shock).
(B) Suppose the government increases the amount that all producers are required to contribute to health insurance coverage, This will cause a decrease in aggregate supply, shifting the aggregate supply curve to the left. This increases the cost of production. It is the example of negative supply shock.
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