Higher resource prices shift the
A) short- run aggregate supply curve leftward, raising the price level and decreasing real GDP so it is less than potential GDP.
B) short- run aggregate supply curve rightward, raising the price level and decreasing real GDP so it is less than potential GDP.
C) long- run aggregate supply curve leftward, decreasing real GDP and increasing potential GDP.
D) short- run aggregate supply curve leftward, raising the price level and decreasing potential GDP.

Question

Quizplus · Accepted Answer

Higher resource prices increase the production costs for firms, causing a decrease in the short-run aggregate supply (SRAS) curve, as they are less inclined to produce goods and services at higher costs. A leftward shift in the SRAS curve raises the price level and decreases real GDP so it is less than potential GDP. Therefore, option A is the most appropriate choice.

Higher Resource Prices Shift the