ECONOMICS
AGGREGATE DEMAND
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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What would be the effect of a decrease in regulations on businesses?
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Increase AD
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Decrease AD
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Increase SRAS
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Decrease SRAS
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Explanation:
Detailed explanation-1: -These increased labor costs would cause business expenses to increase; as a result, firms would have lower output as they have less money to spend on production. Firms lowering output equals a decrease in SRAS.
Detailed explanation-2: -The SRAS curve slopes up for two reasons: sticky input prices (like wages) and sticky output prices (also called “menu costs”).
Detailed explanation-3: -A shift in the SRAS curve to the right results in a greater real GDP and downward pressure on the price level if aggregate demand remains unchanged.
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