5. Why the short-run aggregate supply curve slopes upward This graph shows the short-run aggregate supply curve (SRAS) of a hypothetical economy where the currency is the dollar. Last year, the economy was producing at point A. The price level was 145 and the quantity of real GDP supplied was $500 billion. This year, the economy is producing at point B. The price level has fallen to 135 and the quantity of real GDP supplied has fallen to $300 billion and nominal wages fell by the same percentage as the price level. Government officials are confused about why the quantity of output moved from point A to point B, and they ask you for help. PRICE LEVEL 160 155 150 145 140 135 130 125 120 0 100 200 Short-Run Aggregate Supply 300 400 500 SRAS 600 700 800 REAL GDP (Billions of dollars) ? Since nominal wages fell by the same percentage as the price level, you explain that a decrease in the price level leads to wages. no change, an increase, or a decrease This, in turn, leads to which of the following? O Workers mistakenly believe that their real wages have risen and supply more labor. Firms hire more workers. Workers mistakenly believe that their real wages have fallen and supply less labor. Firms hire fewer workers. Ultimately, a decrease in the price level leads to being produced in the short run. no change in level of output, more output, or less output in real
5. Why the short-run aggregate supply curve slopes upward This graph shows the short-run aggregate supply curve (SRAS) of a hypothetical economy where the currency is the dollar. Last year, the economy was producing at point A. The price level was 145 and the quantity of real GDP supplied was $500 billion. This year, the economy is producing at point B. The price level has fallen to 135 and the quantity of real GDP supplied has fallen to $300 billion and nominal wages fell by the same percentage as the price level. Government officials are confused about why the quantity of output moved from point A to point B, and they ask you for help. PRICE LEVEL 160 155 150 145 140 135 130 125 120 0 100 200 Short-Run Aggregate Supply 300 400 500 SRAS 600 700 800 REAL GDP (Billions of dollars) ? Since nominal wages fell by the same percentage as the price level, you explain that a decrease in the price level leads to wages. no change, an increase, or a decrease This, in turn, leads to which of the following? O Workers mistakenly believe that their real wages have risen and supply more labor. Firms hire more workers. Workers mistakenly believe that their real wages have fallen and supply less labor. Firms hire fewer workers. Ultimately, a decrease in the price level leads to being produced in the short run. no change in level of output, more output, or less output in real
Chapter1: Making Economics Decisions
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Topic: Why the short-run aggregate supply curve slopes upward.
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Transcribed Image Text:5. Why the short-run aggregate supply curve slopes upward
This graph shows the short-run aggregate supply curve (SRAS) of a hypothetical economy where the currency is the dollar. Last year, the economy
was producing at point A. The price level was 145 and the quantity of real GDP supplied was $500 billion. This year, the economy is producing at point
B. The price level has fallen to 135 and the quantity of real GDP supplied has fallen to $300 billion and nominal wages fell by the same percentage as
the price level. Government officials are confused about why the quantity of output moved from point A to point B, and they ask you for help.
PRICE LEVEL
160
155
150
145
140
135
130
125
120
0
100
200
Short-Run Aggregate Supply
300
400
500
SRAS
600
700
800
REAL GDP (Billions of dollars)
?
Since nominal wages fell by the same percentage as the price level, you explain that a decrease in the price level leads to
wages.
no change, an
increase, or a
decrease
This, in turn, leads to which of the following?
O Workers mistakenly believe that their real wages have risen and supply more labor.
Firms hire more workers.
Workers mistakenly believe that their real wages have fallen and supply less labor.
Firms hire fewer workers.
Ultimately, a decrease in the price level leads to
being produced in the short run.
no change in level of output, more
output, or less output
in real
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