Title: Understanding Factors Affecting the Aggregate Supply CurveQuestion:Which of the following does not shift the aggregate supply curve?Options:- Changes to technology- Increases in government spending- Decrease to the average nominal wage rate- Additions to capital stockExplanation:This question aims to test the understanding of factors that influence the aggregate supply curve in an economy. The aggregate supply curve represents the total supply of goods and services that firms in an economy are willing to sell at a given price level.1. **Changes to technology**: Improvements in technology can increase productivity, enabling more output from the same amount of input, thus shifting the aggregate supply curve.2. **Increases in government spending**: This primarily affects aggregate demand rather than aggregate supply, as it influences the total demand for goods and services in the economy.3. **Decrease to the average nominal wage rate**: A reduction in wage rates can lower production costs for firms, potentially increasing supply and shifting the aggregate supply curve.4. **Additions to capital stock**: Increasing capital stock, such as machinery and infrastructure, enhances production capabilities, thereby shifting the aggregate supply curve.Answer Key:The correct answer to the question is "Increases in government spending," as it is primarily a factor that affects aggregate demand rather than the supply side directly.

Aggregate demand and aggregate supply are the two most important variables in macroeconomy. Macroeconomic market would be in equilibrium when aggregate demand and aggregate supply are equal. Aggregate demand curve is the amount of goods and services wanted by the consumers in the economy and aggregate supply is the amount of goods and services manufactured and produced in order to sell in the economy. For the economy to function properly both have to be taken care of. Government and central bank make appropriate policies for maintenance of aggregate demand and aggregate supply, so that economy functions properly.Decrease in average nominal wage rate would mean that producers would have more money which they would use in more production activities. This would increase aggregate supply curve and shift it to right. Therefore aggregate supply would increase and shift to right. Therefore option (3) is incorrect. Technology changes affect aggregate supply. When technology increases,as a result aggregate supply increases. Due to increase in technology, more quantity of output is produced at a faster rate and therefore aggregate supply curve would increase and shift to right. Therefore option (1) is incorrect. Additions to capital stock increases production activities and therefore aggregate supply also increases. Therefore aggregate supply curve would shift to right. Therefore option (4) is incorrect. An increase in government spending would increase the aggregate spending and not aggregate supply. Therefore aggregate demand would increase as a result of increase in spending, consumption; as people would purchase more goods and services. Therefore, an increase in government spending would not shift the aggregate supply curve. It would shift aggregate demand. As a result of increase in aggregate demand, it would shift to right. Therefore increases in government spending does not shift the aggregate supply curve. Therefore answer is option (2).

Answered: Which of the following does not shift…

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Which of the following does not shift the aggregate supply curve? Changes to technology Increases in government spending Decrease to the average nominal wage rate Additions to capital stock

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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