Use the following to answer questions . Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression -(Exhibit: Aggregate Demand and Aggregate Supply and the Great Depression) During the Great Depression, aggregate demand declined sharply. Suppose the economy moved to a short-run equilibrium at point k. Over time, the economy moved to point j. What could have caused the economy to move to point j? A) Falling output prices caused the aggregate supply to shift from SRAS₁ to SRAS₂. B) Falling nominal wages caused the aggregate supply to shift from SRAS₁ to SRAS₂. C) Expansionary fiscal policies caused the aggregate supply to shift from SRAS₁ to SRAS₂. D) A decline in the demand for U.S. goods by foreign countries aggregate supply to shift from SRAS₁ to SRAS₂.

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The movement from point k to point j suggests an increase in output and a decrease in prices. This is consistent with a shift to the right in the short-run aggregate supply (SRAS) curve, indicating that an increase in aggregate supply has occurred. Falling nominal wages (option B) could lead to a decrease in firms' production costs, causing an increase in aggregate supply and a shift in the SRAS curve to the right, from SRAS₁ to SRAS₂. None of the other options given would directly cause a shift in the SRAS curve.

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