Rising wages and input prices:
A) cause the aggregate supply curve to shift to the right.
B) cause the aggregate demand curve to shift to the left.
C) cause the aggregate demand curve to shift to the right.
D) cause the aggregate supply curve to shift to the left.

Question

Quizplus · Accepted Answer

When wages and input prices rise, the cost of production for firms increases. This reduces the profits of firms, causing them to produce less output at every price level. This results in a leftward shift of the aggregate supply curve. Therefore, the correct answer is D.

Rising Wages and Input Prices