A leftward shift in the aggregate supply curve produces
A) demand-side inflation.
B) increases in the price level.
C) falling interest rates.
D) a higher standard of living.
E) a horizontal Phillips curve.

Question

Quizplus · Accepted Answer

A leftward shift in the aggregate supply curve means that the economy is producing less output at every given price level. This usually happens due to negative supply shocks such as a decrease in the availability of key inputs like oil or labor. This causes prices to increase as there is less supply to meet the demand, thus shifting the aggregate supply curve to the left. This is known as cost-push inflation.

A Leftward Shift in the Aggregate Supply Curve Produces