Aggregate supply increases when:
A) wage rates or interest rates decrease while the economy's price level remains unchanged.
B) resource availability is reduced.
C) there are fewer workers.
D) there is less capital and the price level remains unchanged.
E) there are increased inflationary expectations of labor.

Question

Quizplus · Accepted Answer

When wage rates or interest rates decrease, firms are able to produce goods and services at a lower cost, which increases their incentive to supply more output at every price level. This shift of the aggregate supply curve to the right results in a higher level of equilibrium output and a potentially lower price level. The other options would reduce the quantity or quality of resources available, which would shift the aggregate supply curve to the left, reducing output and increasing prices.

Aggregate Supply Increases When