Question

Assume the economy is initially operating at the natural level of output. Which of the following events will initially cause a shift of the aggregate supply (AS) curve?

a) an increase in the money supply

b) an increase in government spending

c) an increase in consumer confidence

d) all of the above

e) none of the above

Answer 1

Option A explanation: Increase in money supply increases purchasing power of public, induces changes in aggregate demand.
Option B explanation: An increase in government spending also results into more money with the public thus effecting the aggregate demand as mentioned in option A.
Option C explanation: The confidence that consumers have in the economy affects their willingness to undertake consumption expenditures. So change in the consumer confidence, by changing consumption expenditures, induces changes in aggregate demand.
Thus all the above three option induces change in aggregate demand but not in aggregate supply.

Option E. None of the above is answer, as none of the options causing shift in aggregate supply curve.

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