Suppose that a small economy that depends mostly on agriculture experiences a year with exceptionally good conditions for growing crops. What would the good weather do to the short-run aggregate-supply curve and the short-run Phillips curve?
A) It would shift both the short-run aggregate-supply curve and the short-run Phillips curve right.
B) It would shift both the short-run aggregate-supply curve and the short-run Phillips curve left.
C) It would shift the short-run aggregate-supply curve to the right, and the short-run Phillips curve to the left.
D) It would shift the short-run aggregate-supply curve to the left, and the short-run Phillips curve to the right.

Question

Quizplus · Accepted Answer

Exceptionally good conditions for growing crops would lead to an increase in agricultural output and a decrease in the costs of production for agricultural goods. This would result in a rightward shift of the short-run aggregate supply curve, indicating an increase in output at any given price level. Additionally, the decrease in production costs would lead to a decrease in inflationary pressures, shifting the short-run Phillips curve to the left. Therefore, the correct answer is C.

Suppose That a Small Economy That Depends Mostly on Agriculture