Firms' manufacturing costs increase substantially due to higher electricity tariffs. How will this affect the economy?
A) Aggregate supply will rise causing a boom in the economy.
B) Aggregate supply will fall and the economy will move into recession.
C) Aggregate demand will fall and the economy will move into recession.
D) Aggregate demand will rise causing a boom in the economy.

Question

Quizplus · Accepted Answer

When firms' manufacturing costs increase, it becomes more expensive for them to produce goods. This leads to a decrease in aggregate supply as firms produce less, which can slow economic growth and potentially lead to a recession.

Firms' Manufacturing Costs Increase Substantially Due to Higher Electricity Tariffs