Which of the following would cause the short-run aggregate supply curve to shift to the right? A. a decrease in inflation expectations B. an increase in the price of natural resources C. an increase in interest rates D. a technological advance E. an increase in the price level
The correct answer and explanation is:
Correct Answer: D. a technological advance
The short-run aggregate supply (SRAS) curve represents the relationship between the overall price level and the quantity of goods and services that firms in an economy are willing to produce, holding input prices and expectations constant. Several factors can shift this curve, indicating a change in the productive capacity or cost structure of firms.
A rightward shift in the SRAS curve implies that, at every price level, firms are willing and able to supply more goods and services. One key factor that causes this is a technological advance. When new technology is introduced, production processes become more efficient. Firms can produce more output with the same amount of inputs. This reduces the per-unit cost of production, encouraging firms to increase output, which shifts the SRAS curve to the right.
Let us examine why the other options are incorrect:
- A. A decrease in inflation expectations: This could reduce wage and price demands, making it cheaper to produce goods, and might shift SRAS to the right. However, its impact is more commonly associated with a gradual adjustment rather than an immediate shift in SRAS, making it a less direct cause than a technological advance.
- B. An increase in the price of natural resources: This increases the cost of production, causing the SRAS curve to shift left, not right.
- C. An increase in interest rates: Higher interest rates increase borrowing costs for firms, reducing investment and potentially increasing production costs, which could also shift SRAS left.
- E. An increase in the price level: This causes movement along the SRAS curve, not a shift of the curve itself.
Therefore, the most direct and correct cause of a rightward shift in the short-run aggregate supply curve is a technological advance.