Consider the economy's aggregate supply curve.Other things being equal,firms' unit costs will tend to increase if
A)there is a reduction in the price of oil.
B)the government reduces payroll taxes.
C)wage increases exceed productivity increases.
D)wages rise.
E)wage and price controls are in effect.

Question

Quizplus · Accepted Answer

If wages increase more than productivity, firms will have to pay more for each unit of output, which will increase their unit costs and shift the aggregate supply curve to the left. Reduction in the price of oil (A) would decrease production costs and shift the aggregate supply curve to the right. Reduction in payroll taxes (B) would decrease production costs and shift the aggregate supply curve to the right. Wages rising (D) would increase unit costs and shift the aggregate supply curve to the left. Wage and price controls (E) would limit the ability of firms to adjust their prices and wages, causing shortages or surpluses in the market and no effect on the aggregate supply curve.

Consider the Economy's Aggregate Supply Curve