Question

For each of the following scenarios, please decide whether there will be an increase or decrease in short-run aggregate supply, or if there will be no change.

1.Although the economy is healthy, there is an increase in the natural rate of unemployment.

2.The price of lumber, a commodity, rises drastically due to the effect of heavy winter weather in the American Northwest, where much of the world\'s lumber is grown.

3.The production of a new type of blade for their combine harvesters, a tractor used to harvest crops, has allowed wheat farmers, like Herbert, to increase productivity by 40%.

Answer 1

1.short run aggregate supply decreases

2.short run aggregate supply decreases

3.short run aggregate supply increases

Step-by-step explanation:

The short run aggregate supply is the total production of goods and services in an economy holding some factors of production fixed.

1. Even in a healthy economy. As the natural rate of unemployment increases, short run aggregate supply decreases.

2. A rise in the price of lumber (inflation) would cause a decrease in short run aggregate supply.

3. An increase in productivity caused by the acquisition of capital equipment would cause the short run aggregate supply to increase.