Question ID: 12440 All of the following will cause a shift in the supply curve EXCEPT: A. supply shocks. B. changes in the expected rate of inflation. C. changes in resource prices. D. a change in the exchange rate value of the nation’s currency. D changes in the exchange rate of a nation’s currency will cause a shift in the demand curve. i thought the answer would be (B) cause expected rate of inflation would cause people to spend more now and increase AD, do you know why the answer is D , cheers
When AD increases, prices increase. Imagine the AD curve shifting to the right and the equilibrium point moving along the AS curve (assuming that the AS does not shift). However, keep in mind that markets always tend to have the need to find equilibrium point for quantity supplied as well as prices. Hence, with the increase in AD prices, there will be an increase in AS which shifts the AS curve to the right in a similar manner to the AD curve bringing prices back down. Having said that, you should also note that during inflation periods the shifts in AD and AS will find equilibium at a higher price. Another way to look at it, if you are supplier expecting prices to go up, you would produce more to take advantage of the increase in prices.