Question

Identify how each of the scenarios affects short‑run aggregate supply.

a. The U.S. government increases the minimum wage.
b. Widespread adoption of the Internet by businesses increases productivity and efficiency.
c. The government decreases the payroll tax paid by employers.
d. The U.S. government decreases the personal income tax rate paid by households.

WORD BANK
increase
decrease
no change

Answer 1

a. decrease

b. increase

c. increase

d. no change

Step-by-step explanation:

A higher minimum wage increases labor costs for the firm and aggregate supply decreases.

An increase in productivity caused by the Internet increases the aggregate supply curve.

A decrease in taxes paid by firms reduces operating costs and causes the aggregate supply curve to increase.

If businesses anticipate a recession, the aggregate supply curve decreases as firms cut production levels.

A decrease in the personal income tax rate paid by households has no impact on aggregate supply; this would impact aggregate demand.