Question

Which of the following causes an increase in short-run aggregate supply?

a. the price level decreases
b. firms and workers expect price level to fall
c. firms and worked expect the price level to rise
d. there are fewer workers in the labor force
e. the price level increases

Answer 1

An increase in short-run aggregate supply can occur when there are fewer workers in the labor force, leading to a rightward shift of the SRAS curve and an increase in output and employment.

Step-by-step explanation:

In the short run, an increase in short-run aggregate supply can occur when there are fewer workers in the labor force. In this scenario, with a decrease in the number of available workers, employers are likely to bid up the wages of the remaining workers, which can lead to an increase in production and output.

This increase in aggregate supply can be illustrated by a rightward shift of the short-run aggregate supply (SRAS) curve. As a result, the equilibrium level of output and employment can increase.

For example, imagine a situation where there is a shortage of skilled labor due to an increase in retirement or a decrease in immigration. In response to this labor shortage, employers may increase wages to attract and retain workers. This would incentivize firms to increase production and output, leading to an increase in short-run aggregate supply.