6. Nonprice-level determinants of aggregate supply The following graph shows an

Question

6. Nonprice-level determinants of aggregate supply The following graph shows an increase in short-run aggregate supply (SRAS) in a hypothetical economy. Specifically, short-run aggregate supply shifts to the right from SRASi to SR AS2 , causing the quantity of output supplied at a price level of L25 nse mom·250 billon t ilicn Review the graph and then complete the table that follows. 175 150 RAS SRAS 75 ) 25 0 500150 200 250 300 30 400 REAL GDP (Billions of dollars) The following table lists several determinants of short-run aggregate supply. Complete the table by indicating the change needed in each determinant to increase short-run aggregate supply Change Needed to Increase SRAS Determinant Burdensome Regulations Tax Rates on Firms and Corporations Nominal Wage Rate

Explanation / Answer

Burdensome regulations need to FALL to increase SRAS.
This would lead to lower costs of operating for firms and hence shift supply curve.

Tax rates on Firms and Corporatiosn should FALL.
This would lead to higher profitability and thus lead to higher supply.

Nominal wage rate should FALL.
This would lead to lower costs of production and hence shift out of the supply curve.

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