Suppose that the money prices of raw materials increase so that short-run aggregate supply decreases. If the Federal Reserve does not respond, the higher money price of raw materials will i. repeatedly shift the aggregate demand curve rightward and raise the price level.
Ii. shift the aggregate demand curve rightward and the aggregate supply curve leftward, raising prices.
Iii. result initially in lower employment and a higher price level.
A)i only
B)both i and ii
C)both ii and iii
D)i and iii
E)iii only

Question

Quizplus · Accepted Answer

An increase in the money prices of raw materials will initially decrease short-run aggregate supply, leading to higher prices and lower employment, without affecting aggregate demand.

Suppose That the Money Prices of Raw Materials Increase So