A change in shortrun aggregate supply from AS3 to AS1 can be

A change in short-run aggregate supply from AS3 to AS1 can be caused by

a decrease in productivity.

a decrease in consumer wealth.

a decrease in the degree of excess capacity.

an increase in consumer confidence.

a decrease in business taxes.

SRAS3 SRAS1 SRAS2 AD2 AD1 AD3 Real Gross Domestic Product

Solution

A decrease in the business tax is the correct answer. This is because with the decrease in the business tax, the cost of production decrease for the producer because with decrease in tax it is cheaper to purchase inputs on which tax has been reduced.

So the profit margin of producer increase. So they produce more in short run. Hence output increase. So short run aggregate supply curve shifts rightward from AS3 to AS1.

Hence option fifth is the correct answer.

Option fifth:

A decrease in business tax.