In Japan in 2000 the price level fell by 5 percent and nominal wage rates did not change. As a result, there was a
A) rightward shift in Japan's short- run aggregate supply curve.
B) movement down along Japan's long- run aggregate supply curve.
C) movement down along Japan's short- run aggregate supply curve.
D) movement down along Japan's short- run aggregate demand curve.

Question

Quizplus · Accepted Answer

The fall in the price level would lead to a decrease in production costs and an increase in the profitability of firms. As a result, in the short run, firms would increase output, leading to a movement down along the short-run aggregate supply curve. There would not be a rightward shift in the short-run aggregate supply curve as there are no changes in the factors of production or technology. Similarly, there would not be a movement down along the long-run aggregate supply curve as this curve represents the economy's potential output in the long run, which is not affected by short-run price level changes. The fall in price level would not affect the aggregate demand curve, so there would not be a movement down along the short-run aggregate demand curve.

In Japan in 2000 the Price Level Fell by 5