Which of the following events is least likely to cause a downward shift in short-run aggregate supply? A) Inflation increases from 4% to 7%. B) A labor stoppage causes the price of steel to rise. C) Oil exporting countries reduce their production levels. Your answer: C was incorrect. The correct answer was A) Inflation increases from 4% to 7%. Changes in the price level represent movement along the short-run aggregate supply curve. The other items listed are events that are likely to shift the short-run aggregate supply curve to the left (decrease SRAS). ----Isn’t a downward shift in SRAS an increase? If the other answers are a decrease (left and upward), then wouldnt B and C be unlikely to shift down and A be likely? I guess it all boils down to me being confused and thinking SRAS shifting down is an increase, not a decrease
Answer B&C) A downward shift in SRAS curve would increase the price of steel or oil, but that is because it reduces overall supply, and when supply is reduced prices will rise.Answer A, the increase in inflation does not only increase oil and steel prices, it also increases income. Because the increase in would equal the increase steel and oil price AD would remain the same(no shift in AD curve). I hope this helps
You are correct in thinking that the downward shift is an increase - but it is an increase in price level, not output. Choices B and C are a decrease in actual output levels hence the shift in the curve (left and upwards). The question is asking the LEAST LIKELY to cause a downward SHIFT.
This is how I learnt it Aggregate supply shifts due to Changes if labour changes in capital changes in resource prices Aggregate demand shifts due to change in expectations (inflation) change in money supply change in world economy Please correct me if I’m wrong!
Not exactly LRAS shifts mainly due to 1. Change in quantity of labor 2. change in quantity of capital 3. change in technology SRAS are drawn keeping money wages constant. So when wages or prices of other inputs change SRAS shifts (due to change in expected inflation for example). Changes in actual inflation leads to movement along SRAS.
Got it, thanks guys. Eco is one of my weaker subjects, lot of memorizing things that are not entirely intuitive to me, it’s more raw memory then understanding the concept for me =/
Does anyone think the Q-Bank’s econ questions are it’s most inadaquate section. Compared to its weight on the exam, the proportion of econ questions to other sections is tiny. Moreover, most of the econ questions I’ve come across, and I’ve done almost all of them, are very concise questions that, in my opinion, won’t parallel the actual exam. Maybe I’m just being cranky.