Which event would reduce short-run aggregate supply but not long-run aggregate supply?
A) A major natural disaster results in the loss of life of 10% of the labor force.
B) Government environmental regulations require the use of more expensive energy sources.
C) The capital stock of a country rises by 10%.
D) Concentration in the leading industries of a country falls.

Question

Quizplus · Accepted Answer

Government environmental regulations that require the use of more expensive energy sources would increase production costs in the short run, leading to a decrease in short-run aggregate supply. However, in the long run, firms can adjust to these regulations through innovation or finding more efficient ways to comply, thus not affecting the long-run aggregate supply.

Which Event Would Reduce Short-Run Aggregate Supply but Not Long-Run