Question

In each of the following​ cases, what is the effect on the​ short-run aggregate supply ​(SRAS​) ​curve? An increase in firm costs A. does not shift the SRAS curve. B. shifts the SRAS curve upward. C. shifts the SRAS curve downward. An increase in the money supply A. does not shift the SRAS curve. B. shifts the SRAS curve downward. C. shifts the SRAS curve upward. An increase in consumption A. shifts the SRAS curve upward. B. does not shift the SRAS curve. C. shifts the SRAS curve downward.

Answer 1

Answer: 1. B. shifts the SRAS curve upward.

2. A. does not shift the SRAS curve.

3. B. does not shift the SRAS curve.

Explanation:

1. When Firm costs rise, the input cost for Producers rises and they respond by reducing production so as to reduce the cost of production. This reduction causes a reduction in Supply that forces the short-run aggregate supply ​(SRAS​) ​curve to shift left (upward).

2. This change in the Money Supply means that there will be more money for households to spend. This increases demand but does not have any direct influence on the short-run aggregate supply ​(SRAS​) ​curve.

3. An Increase in consumption means that there is greater demand for goods and services in an Economy. Indirectly this will cause producers to ramp up production to meet these needs but directly, there is no influence on the short-run aggregate supply ​(SRAS​) ​curve.