Question

Which of the following will shift the aggregate supply curve to the right?

1. A new networking technology increases productivity all over the economy.

2. The price of oil rises substantially.

3. Business taxes fall.

4. The government passes a law doubling all manufacturing wages.

Short answer

Options (a) and (b) will result in a rightward shift in the aggregate supply curve.

Step-by-step solution

Explanation for part (a)

The new networking technology will increase the productivity of the economy. Thus the production at the same input prices will increase. As a result, the aggregate supply curve will shift to the right.

Explanation for part (b)

Since the oil is imported in the U.S. in bulk, increasing the price of resource inputs will raise the production cost. High production costs will reduce the aggregate supply at the then input prices. Therefore, the aggregate supply curve will shift to the left.

Explanation for part (c)

A fall in business taxes decreases the per-unit production costs. Lower production costs will increase the aggregate supply in the economy. The aggregate supply curve will shift to the right.

Explanation for part (d)

The major production cost for any firm is wages. Doubling wages will increase production costs severely. Higher production costs will result in lower aggregate production. Thus, the aggregate supply curve will shift to the left.