The aggregate supply curve shifts rightward when
A)potential GDP decreases.
B)the money wage rate falls.
C)income taxes increase.
D)government purchases increase.
E)the money wage rate rises.

Question

Quizplus · Accepted Answer

The money wage rate falling reduces the cost of production for firms, allowing them to produce more output at each price level, thus shifting the aggregate supply curve to the right. Alternatively, increasing income taxes and government purchases would affect aggregate demand, not aggregate supply. A decrease in potential GDP and a rise in the money wage rate would both shift the aggregate supply curve to the left.

The Aggregate Supply Curve Shifts Rightward When