Aggregate Supply Shift from Input Cost Changes

Steps:

• Identify the aggregate supply (AS) curve: It shows total output firms produce at different price levels.
• Determine shift direction: AS1 to AS2 likely rightward, increasing supply at each price level.
• Evaluate choices: Focus on factors affecting production costs or capacity, like wages, exchange rates, or labor supply.
• Select cost-reducing factor: Lower costs shift AS right by encouraging more output.

Why D is correct:

• A fall in average wages lowers labor costs, a key input, shifting short-run AS rightward per the AS curve definition where reduced costs increase quantity supplied at each price level.

Why the others are wrong:

• A: A decrease in price level moves along the AS curve, not shifts it.
• B: A decrease in exchange rate raises import costs, shifting AS leftward.
• C: A fall in immigration reduces labor supply, shifting AS leftward.

Final answer: D