Exhibit 10.1

-Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. What happens to short-run aggregate supply if prices are higher than expected?
A) SRAS shifts right.
B) SRAS shifts left.
C) There is an upward movement along SRAS to Y₃.
D) There is a downward movement along SRAS to Y₂.
E) Nothing happens in the short run.

Question

Exhibit 10.1
 
-Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. What happens to short-run aggregate supply if prices are higher than expected?
A) SRAS shifts right. 
B) SRAS shifts left. 
C) There is an upward movement along SRAS to Y₃. 
D) There is a downward movement along SRAS to Y₂. 
E) Nothing happens in the short run.

Quizplus · Accepted Answer

An increase in prices higher than expected results in an upward movement along the SRAS curve to a higher level of output, not a shift of the curve itself. This is because, in the short run, firms typically respond to higher prices by increasing production, assuming other factors remain constant.

Exhibit 10.1 -Refer to Exhibit 10.1, Which Shows the Short-Run Aggregate Supply