Figure 35-9. The left-hand graph shows a short-run aggregate-supply SRAS) curve and two aggregate-demand AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate."
-Refer to Figure 35-9. The shift of the aggregate-supply curve from AS1 to AS2 could be a consequence of
A) an increase in the money supply.
B) an adverse supply shock.
C) a decrease of output from Y1 to Y2.
D) a slow adjustment of people's expectation of the inflation rate.

Question

Figure 35-9. The left-hand graph shows a short-run aggregate-supply SRAS) curve and two aggregate-demand AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate."  
-Refer to Figure 35-9. The shift of the aggregate-supply curve from AS1 to AS2 could be a consequence of
A) an increase in the money supply. 
B) an adverse supply shock. 
C) a decrease of output from Y1 to Y2. 
D) a slow adjustment of people's expectation of the inflation rate.

Quizplus · Accepted Answer

The shift of the aggregate-supply curve from AS1 to AS2 is caused by an adverse supply shock, which increases the cost of production and reduces the quantity of output that can be produced at every price level. The other choices would not lead to a shift in the short-run aggregate-supply curve. Increasing the money supply would shift the aggregate-demand curve to the right. A decrease in output from Y1 to Y2 would result in a movement along the same aggregate-supply curve. A slow adjustment of people's expectation of the inflation rate would affect the long-run aggregate-supply curve, not the short-run one.