Consider the basic AD/AS model.If there is a decrease in the cost of non-labour inputs to production,the result will be to
A)shift the AD curve to the left.
B)shift the AD curve to the right.
C)shift the AS curve to the left.
D)shift the AS curve to the right.
E)cause a movement to the left along the AS curve.

Question

Quizplus · Accepted Answer

A decrease in the cost of non-labor inputs to production will decrease the overall cost of production, leading to an increase in aggregate supply (AS). This will cause the AS curve to shift to the right. The decrease in costs could also lead to a decrease in prices, which would lead to an increase in aggregate demand (AD) due to a decrease in the price level. However, the magnitude of the shift in AS is likely to be greater than the increase in AD. As a result, the net effect will be an increase in output and a decrease in prices.

Consider the Basic AD/AS Model