Figure 35-9.The left-hand graph shows a short-run aggregate-supply (SRAS)curve and two aggregate-demand (AD)curves.On the right-hand diagram,"Inf Rate" means "Inflation Rate." -Refer to Figure 35-9.The shift of the aggregate-supply curve from AS₁ to AS₂ could be a consequence of A)an increase in the money supply. B)an adverse supply shock. C)a decrease of output from Y₁ to Y₂. D)a slow adjustment of people's expectation of the inflation rate.

Question

Quizplus · Accepted Answer

A shift of the SRAS curve to the left indicates a decrease in the potential output level and an increase in the costs of production, both of which can result from an adverse supply shock, such as an increase in oil prices or decrease in productivity. An increase in the money supply can lead to a shift in the AD curve but would not affect the SRAS curve directly. A decrease in output would cause a shift in both the AD and SRAS curves. A slow adjustment of people's inflation expectations would not directly affect either the AD or SRAS curves.