Other things equal, an increase in input prices will
A) reduce aggregate supply and reduce real output.
B) increase the interest rate and lower the international value of the dollar.
C) increase aggregate supply and increase the price level.
D) increase net exports, increase investment, and reduce aggregate demand.

Question

Quizplus · Accepted Answer

An increase in input prices will increase the cost of production for firms, leading to a decrease in aggregate supply (the amount of goods and services produced in the economy), which will result in a decrease in real output (the amount of goods and services available for consumption). Therefore, choice A is the correct answer.

Other Things Equal, an Increase in Input Prices Will