Question

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

a. The price level increases.
b. The price level decreases.
c. Workers agree to wage cuts.
d. Firms and workers expect the price level to rise.
e. There are fewer workers in the labor force.

Answer 1

Workers agreeing to wage cuts cause an increase in short-run aggregate supply (SRAS), as this reduces production costs and allows firms to increase output.

Step-by-step explanation:

Among the options provided, the one that causes an increase in short-run aggregate supply (SRAS) is c. Workers agree to wage cuts. This is because lower wages can reduce production costs for firms, thereby increasing their output at existing price levels. This would result in a shift to the right of the SRAS curve. On the contrary, higher prices for inputs such as oil or labor generally cause the SRAS curve to shift to the left, leading to higher output prices and reduced production. When unemployment rates are unsustainably low, wage bidding can occur, which also shifts SRAS left, as described in the scenario where SRAS moves from SRASO to SRAS₁ and the price level rises from 100 to 130.