Leftward shifts in the aggregate supply curve are expected to
A) reduce real output and raise unemployment.
B) increase real output but raise the price level.
C) increase the price level unless the money supply is allowed to increase to bring down prices.
D) leave output and employment unchanged when the aggregate demand curve intersects the aggregate supply curve's vertical range.
E) reduce output but leave the price level unchanged if the economy is at full employment.

Question

Quizplus · Accepted Answer

Leftward shifts in the aggregate supply curve indicate a decrease in the economy's potential output due to factors such as an increase in production costs or a decline in productivity. This decrease in potential output will lead to a reduction in real output along with a rise in unemployment. Thus, option A is the correct answer.

Leftward Shifts in the Aggregate Supply Curve Are Expected to