Aggregate Supply Reduction: Causes and Implications

Factors Impacting Aggregate Supply

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Question

Which one of the following will most likely reduce aggregate supply?

Answers

A. a technological advance that reduces the cost of energy

B. an increase in the nation's net investment rate

C. an increase in the labor force participation rate

D. regulatory action that generates more benefits than costs

E. a substantial increase in the minimum wage

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Explanations

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A. B. C. D. E.

An increase in the minimum wage reflects and increase in the cost of a resource, labor. This implies that the SRAS will shift inward because the costs of production are now higher. If the change is permanent, then LRAS will also shift inward.

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