The aggregate supply curve will shift downward when which of the following occurs?
A) A decrease in firm's markup over labour costs.
B) A decrease in the expected price level.
C) A decrease in the level of employment protection.
D) A decrease in unemployment benefits.
E) All of the above.

Question

Quizplus · Accepted Answer

All of the above factors can lead to a decrease in production costs for firms, leading to an increase in aggregate supply. A decrease in firm's markup over labor costs (A) will cause the overall cost of production to decrease, leading to an increase in aggregate supply. Similarly, a decrease in the expected price level (B) will decrease firms' costs of production, as they do not need to spend as much on inputs to produce output, leading to a shift in the aggregate supply curve to the right. A decrease in the level of employment protection (C) can lead to a decrease in the cost of labor, and therefore increase the aggregate supply in the economy. Finally, a decrease in unemployment benefits (D) can lead to a decrease in the cost of labor, incentivizing workers to work more, leading to an increase in the aggregate supply curve.

The Aggregate Supply Curve Will Shift Downward When Which of the Following