A decrease in the price level will cause:
A) the short-run aggregate supply curve to shift to the right.
B) the aggregate demand curve to shift to the right.
C) a movement rightward along the short-run aggregate supply curve.
D) the long-run aggregate supply curve to shift to the right.

Question

Quizplus · Accepted Answer

A decrease in the price level will lead to a decrease in the cost of production for firms, leading to an increase in the quantity of goods and services they are willing to supply at any given price level. This will lead to a movement rightward along the short-run aggregate supply curve. Option A is incorrect because a decrease in the price level will not shift the short-run aggregate supply curve to the right, but rather cause a movement along the curve. Option B is incorrect because a decrease in the price level will not shift the aggregate demand curve to the right, but rather cause a movement along the curve. Option D is incorrect because the long-run aggregate supply curve is not affected by changes in the price level.

A Decrease in the Price Level Will Cause