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

Question

Quizplus · Accepted Answer

When the price level falls by 5 percent, the real wage rate (the purchasing power of money wage rate) increases. This causes firms to reduce their costs of production and increase output, resulting in a movement down along the short-run aggregate supply curve. The short-run aggregate demand curve does not shift because the money wage rate remains constant. There is no shift in the long-run aggregate supply curve as that is determined by factors such as technology, capital, and labor.

In Japan in 2000 the Price Level Fell by 5