Question

1. determine whether each change listed in table 3 - 3.1 will cause an increase, decrease, or no change in aggregate supply (as). always start with as.
2. in column 1, list which component of as is affected: input prices or productivity.
3. in column 2, draw an up arrow if the change will cause an increase in as, a down arrow if it will cause a decrease in as, and write nc if it will not change as.
4. in column 3, write the number of the as curve after the change. (using graph below)

table 3 - 3.1
changes in aggregate supply

change	1. determinant of as	2. change in as	3. resulting as curve
(b) opec successfully increases oil prices.
(c) labor productivity increases dramatically.
(d) giant natural gas discovery decreases energy prices.
(e) computer technology brings new efficiency to industry.
(f) government spending increases.
(g) cuts in tax rates increase incentives to save and invest.
(h) low birth rate will decrease the labor force in the future.
(i) research shows that improved schools have increased the skills of american workers and managers.

pl
as1 as
as2
y(real gdp)

Explanation:

1. (A): Higher wage rates (input price) due to union - power increase costs for firms, decreasing aggregate supply (AS). Determinant is input prices, AS decreases (down - arrow), and the curve shifts to AS1.
2. (B): Increased oil prices (input price) by OPEC raise production costs, reducing AS. Determinant is input prices, AS decreases (down - arrow), and the curve shifts to AS1.
3. (C): Higher labor productivity increases output per worker, increasing AS. Determinant is productivity, AS increases (up - arrow), and the curve shifts to AS2.
4. (D): Lower energy prices (input price) reduce production costs, increasing AS. Determinant is input prices, AS increases (up - arrow), and the curve shifts to AS2.
5. (E): New efficiency from computer technology boosts productivity, increasing AS. Determinant is productivity, AS increases (up - arrow), and the curve shifts to AS2.
6. (F): Government spending affects aggregate demand, not aggregate supply directly. So, determinant is none for AS, no change in AS (NC), and the curve remains AS.
7. (G): Tax - rate cuts affect incentives for saving and investment, mainly impacting aggregate demand in the short - run and not directly affecting AS. So, determinant is none for AS, no change in AS (NC), and the curve remains AS.
8. (H): A future decrease in the labor force reduces potential output, decreasing AS. Determinant is productivity (as labor is a key input), AS decreases (down - arrow), and the curve shifts to AS1.
9. (I): Improved skills of workers and managers increase productivity, increasing AS. Determinant is productivity, AS increases (up - arrow), and the curve shifts to AS2.

Answer:

Change	1. Determinant of AS	2. Change in AS	3. Resulting AS curve
(B)	Input prices	$\downarrow$	AS1
(C)	Productivity	$\uparrow$	AS2
(D)	Input prices	$\uparrow$	AS2
(E)	Productivity	$\uparrow$	AS2
(F)	None	NC	AS
(G)	None	NC	AS
(H)	Productivity	$\downarrow$	AS1
(I)	Productivity	$\uparrow$	AS2