A decrease in aggregate supply means

1. the real domestic output will increase and rises in the price level will become smaller.

2. both the real domestic output and the price level will decrease.

3. both the real domestic output and rises in the price level will become greater.

4. the real domestic output will decrease and the price level will rise.

Question

Business

Johnny Joseph

20 April, 14:28

A decrease in aggregate supply means

1. the real domestic output will increase and rises in the price level will become smaller.

2. both the real domestic output and the price level will decrease.

3. both the real domestic output and rises in the price level will become greater.

4. the real domestic output will decrease and the price level will rise.

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Answers (1)

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Saniya Shepherd · Answer 1

4. The real domestic output will decrease and the price level will rise.

Explanation:

Aggregate supply is the total output or the total supply of goods and services produced within an economy in a specific time period at a given price.

When the short-run Supply curve shifts to the right the aggregate output in the economy increases whereas the price level decreases. This happens as a result of a fall in the input prices e. g. taxes, subsidies, wages, and price of raw materials.

When the short-run Supply curve shifts to the left the aggregate output in the economy decreases whereas the price level increases. This happens as a result of a rise in the input prices e. g. taxes, subsidies, wages, and price of raw materials.