If inflation increases, this could be illustrated as a:
A) rightward shift of the long-run aggregate supply curve.
B) leftward shift of the long-run aggregate supply curve.
C) rightward shift of the short-run aggregate supply curve.
D) movement down along the short-run aggregate supply curve.

Question

Quizplus · Accepted Answer

Inflation is defined as an increase in the average level of prices in the economy. This is caused by a decrease in the purchasing power of money. Therefore, an increase in inflation would result in higher costs for inputs, which would decrease the profitability of firms. In response to this, firms would decrease production, leading to a leftward shift of the long-run aggregate supply curve.

If Inflation Increases, This Could Be Illustrated as A