Describe factors that would shift short run aggregate supply.

Expert Solution

The short-run aggregate supply is upward sloping and it shows the positive relationship between price level and real GDP. So it can be said that the aggregate supply curve shows the various amounts of real output that businesses will produce at each price level.

The factors that shifts the short-run AS curve.

Wages

An increase in the wages will increase the cost of production so it is less profitable to produce, so production decreases. Hence aggregate supply decreases, so aggregate supply curve shift leftward and vice-versa.

Productivity

An increase in the productivity leads to more production of goods and services by same inputs. Hence production increases. Hence aggregate supply increases, so aggregate supply curve shift rightward and vice-versa.

Inputs price

Since oil is an inputs for production. So with an increase in the oil price will increase the cost of production because oil is an input, so it is less profitable to produce, so production decreases. Hence aggregate supply decreases, so aggregate supply curve shift leftward and vice-versa.

Investment.

An increase in the investment increases the production capacity of the firm, so production increases. Hence aggregate supply increases, so aggregate supply curve shift rightward and vice-versa.

Rahul Sunny answered 2 years ago

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