The short-run aggregate supply curve shifts to the right when
A)output gap is higher.
B)output gap is lower.
C)expected inflation is higher.
D)expected inflation is lower.

Question

Quizplus · Accepted Answer

The short-run aggregate supply curve shows the relationship between the price level and the quantity of output that firms are willing to produce in the short run. A rightward shift of the short-run aggregate supply curve signifies an increase in the quantity of output supplied at any given price level. This shift can be caused by a decrease in input prices, an increase in the quantity and quality of physical and human capital, or improvements in technology. This, in turn, reduces the cost of production and, therefore, increases the profitability of firms. Consequently, firms will be willing and able to produce more at any given price level. The shift to the right is not affected by output gap or expected inflation.

The Short-Run Aggregate Supply Curve Shifts to the Right When