What change occurs in the aggregate supply and aggregate demand model when the cost of doing business rises due to higher input costs?
A) The aggregate demand curve shifts right, and aggregate supply remains stable.
B) Aggregate demand remains stable, and short-run aggregate supply shifts left.
C) Aggregate demand remains stable, and short-run aggregate supply shifts right.
D) Aggregate demand remains stable, and both short-run aggregate supply and long-run aggregate supply shift right.

Question

Quizplus · Accepted Answer

When the cost of doing business rises due to higher input costs, the short-run aggregate supply curve shifts to the left. This is because it becomes more expensive for companies to produce goods and services at any given price level, reducing the quantity of goods and services that firms are willing to supply at those prices. Aggregate demand remains stable because the change is related to the cost of production, not to the demand for goods and services.

What Change Occurs in the Aggregate Supply and Aggregate Demand