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 lower 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 lower 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

If prices are lower than expected, firms will reduce their output levels in the short run since they will be selling goods and services below their expected prices, resulting in lower revenue. This reduction in output will cause a downward movement along the SRAS curve to a lower level of output (Y₂). Therefore, the SRAS curve will shift left.

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