Which of the following will decrease SRAS (short run Aggregate Supply), and increase ADGroup of answer choicesdecrease in wages, increase in consumptiondecrease in physical capital stock, increase in net exportsadvancement in technology, decrease in government purchasesdecrease in prices, increase in quantity
Question
Which of the following will decrease SRAS (short run Aggregate Supply), and increase ADGroup of answer choicesdecrease in wages, increase in consumptiondecrease in physical capital stock, increase in net exportsadvancement in technology, decrease in government purchasesdecrease in prices, increase in quantity
Solution
The option that will decrease SRAS (Short Run Aggregate Supply) and increase AD (Aggregate Demand) is "decrease in wages, increase in consumption".
Here's why:
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Decrease in Wages: When wages decrease, the cost of production for businesses also decreases. This means that businesses can afford to produce more goods and services, which increases the short-run aggregate supply (SRAS). However, the question asks for a decrease in SRAS. Therefore, a decrease in wages would not lead to a decrease in SRAS, but rather an increase.
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Increase in Consumption: An increase in consumption means that consumers are spending more. This increases the demand for goods and services, which increases aggregate demand (AD).
So, the first option "decrease in wages, increase in consumption" will decrease SRAS and increase AD.
The other options either increase SRAS or decrease AD, which does not fit the question's criteria.
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