Suppose that the money prices of raw materials increase so that short- run aggregate supply decreases. If the Reserve Bank does not respond, the higher money price of raw materials will

Question

Quizplus · Accepted Answer

In the short run, an increase in the money prices of raw materials will lead to a decrease in short-run aggregate supply, causing a leftward shift in the SRAS curve. If the Reserve Bank does not respond, this will result in higher price levels and potentially lower output, consistent with option III.

Suppose That the Money Prices of Raw Materials Increase So