-Refer to Figure 13.9. In panel b) of the diagram the shift from AS₀ to AS₁ was caused by:

Question

Quizplus · Accepted Answer

The shift from AS₀ to AS₁ in panel b) of the diagram can be caused by a combination of factors that lower the costs of production or improve the supply conditions. These factors include a fall in rates of indirect taxation like the GST, which reduces production costs; a fall in the expected inflation rate, which can lower costs by reducing the need for higher wages and other inflation-related adjustments; and a fall in the rate of growth of wage rates, which directly reduces labor costs. All these changes can improve supply conditions, leading to the observed shift.