Macro Topic 3.

3
Short-Run Aggregate Supply (SRAS)
Part 1 - Check Your Understanding​- ​Answer the questions assuming an upward sloping SRAS.
1. Explain why an increase in price level results in an increase in the quantity supplied of goods and
services in the short-run.
The price increase increases the quality supplied. Other forms of production are being found and eventually
companies will find a way to decrease production costs

2. If the size of the labor force is constant, what will likely happen to unemployment as price level
increases in the short-run? Explain.

The employment level will be low because those who are unemployed will want to get jobs to maintain their
lifestyle
3. Explain why wages are more rigid (or sticky) when price level falls rather than when price level
increases.

Part 2 - Practice​- ​For each of the following situations, identify the determinant (shifter) and indicate if
the short run aggregate supply (SRAS) would most likely increase, decrease, or not change.
Situation Determinant of SRAS Change in SRAS
4. Raw material and resource prices
Cost
left of resources Decrease
decrease
increase significantly in the US.
5. Computer technology brings new
Productivity
right Increase
increase
efficiency to industries.
6. There is a significant increase in
Noleft
change Nodecrease
Change
consumer spending.
7. Labor productivity increases dramatically right increase
Productivity Increase
due to new training programs.
8. The government raises corporate taxes
Actions
left of government Decrease
decrease
significantly.
9. An increase in expected inflation causes
Cost
leftof resources Decrease
decrease
workers to demand higher wages.
10. The government gives tax credits to increase
Actions of government Increase
businesses. right
11. There is a significant decrease in the price right
Cost of resources Increase
increase
of electricity.
12. Due to a trade dispute, oil prices more
Cost of resources Decrease
decrease
than double. left
13. Businesses begin tracking inventories increase
Productivity Increase
electronically, increasing efficiency. right
14. A significant increase in government
Noright
change Noincrease
Change
transfer payments to individuals.

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 Macro Topic 3.3
Short-Run Aggregate Supply (SRAS)
Part 3 - Draw It​- ​Draw a correctly labelled short-run aggregate supply curve and show what would
happen as a result of each scenario.

15. Business and corporate taxes decrease 16. Productivity decreases

17. Businesses and workers expect significantly 18. Consumer spending increases
higher inflation in the near future

​ onsider the quote and answer the question.

Part 4 - Stretch Your Thinking​- C

“CARACAS, Venezuela—Giuseppe Cordivani’s factory on the outskirts of the capital used to

make nearly 300 pairs of women’s shoes a day, from pumps to high-heeled dancing shoes that
sold nationwide. With hyperinflation biting, he’s making just 20 today.”
-​The Wall Street Journal, March 2019
19. According to the SRAS curve model, a higher price level should cause output to increase. Why
might hyperinflation in Venezuela actually decrease output? Explain your reasoning.

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Annual license required. Do not use unless you have purchased a license