Macroecon: Q1: Which of the following will increase short-run aggregate supply?
ID: 1112048 • Letter: M
Question
Macroecon:
Q1: Which of the following will increase short-run aggregate supply?
an increase in the minimum wage
a large decrease in the price of oil
a law that requires health insurance for all employees
an increase in the aggregate price level
Q2: According to the aggregate demand curve, when the aggregate price level _____, the quantity of aggregate output _____.
rises; supplied falls
rises; demanded falls
rises; demanded does not change
falls; demanded falls
A.an increase in the minimum wage
B.a large decrease in the price of oil
C.a law that requires health insurance for all employees
D.an increase in the aggregate price level
Explanation / Answer
1.
A large decrease in the price of oil will increase short-run aggregate supply because oil is an input for the production and when input price decreases it is profitable to produce more goods and services. Hence firm will produce more goods and services and so the short-run aggregate supply will increase and SRAS curve shift rightward.
Hence option b is the correct answer.
2.
According to the aggregate demand curve, when the aggregate price level rises the quantity of aggregate output demanded falls.
This is because at a higher price it is expensive to buy more and due to increase in the price. Due to increase in the price, the disposable income of the consumer decreases so the purchasing power. Therefore aggregate demand for output falls due to increase in the price.
Hence option B is the correct answer,
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