In the aggregate demand-aggregate supply model, which of these changes is most likely when the cost of production increases in the long run?
A) a leftward shift of the short-run aggregate supply curve
B) a leftward shift of the short-run aggregate demand curve
C) a rightward shift of the short-run aggregate supply curve
D) an increase in the potential output level
E) a decrease in the actual price level

Question

Quizplus · Accepted Answer

An increase in the cost of production will cause a leftward shift of the short-run aggregate supply curve. This is because firms will increase their prices to maintain their profit margins, which will result in less output being supplied at any given price level. This reduces the quantity of goods and services supplied in the short run, leading to a decrease in real GDP and an increase in the price level.

In the Aggregate Demand-Aggregate Supply Model, Which of These Changes