Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Given an increase in input price from $4 to $6, we would expect the
Aggregate
A) supply curve to shift to the left.
B) supply curve to shift to the right.
C) demand curve to shift to the left.
D) supply and demand curves to both remain unchanged.

Question

Quizplus · Accepted Answer

An increase in input price would increase the cost of production, causing firms to produce fewer goods at every price level. This would result in a leftward shift of the aggregate supply curve.

Suppose That Real Domestic Output in an Economy Is 20