The long-run aggregate supply curve will shift leftward when
A)consumption spending, investment spending, government purchases, or net exports decrease.
B)price expectations are revised upward.
C)actual prices in the economy as a whole increase.
D)the economy's natural output level falls.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve represents the economy's potential output level, or the output level that could be sustained over time without causing inflation. If the economy's natural output level falls due to factors such as a decrease in available resources or a decrease in technological progress, then the long-run aggregate supply curve will shift leftward. Choices A, B, and C refer to short-term changes in aggregate demand or inflation expectations, which may affect the short-run aggregate supply curve but not the long-run aggregate supply curve in the long term.

The Long-Run Aggregate Supply Curve Will Shift Leftward When