If the prices of crucial raw materials increase
A) the short-run aggregate supply curve shifts leftward.
B) stagflation could occur.
C) a cost-push inflation could occur depending on the behavior of the Federal Reserve.
D) All of the above answers are correct.

Question

Quizplus · Accepted Answer

When the prices of crucial raw materials increase, it can lead to a leftward shift in the short-run aggregate supply curve because production becomes more expensive. This situation can cause stagflation, a combination of inflation and stagnant economic growth, as well as cost-push inflation, especially if the Federal Reserve's policies do not counteract the inflationary pressures. Therefore, all of the given options are correct outcomes of an increase in the prices of crucial raw materials.

If the Prices of Crucial Raw Materials Increase