How are prices and output affected when the long-run aggregate supply curve shifts left?
A) Prices increase and output increases.
B) Prices decrease and output decreases.
C) Prices increase and output decreases.
D) Prices decrease and output increases.

Question

How are prices and output affected when the long-run aggregate supply curve shifts left?  
A) Prices increase and output increases. 
B) Prices decrease and output decreases. 
C) Prices increase and output decreases. 
D) Prices decrease and output increases.

Quizplus · Accepted Answer

When the long-run aggregate supply curve shifts left, it means that the economy's potential output has decreased. In this situation, the economy cannot produce as much output as it could before without experiencing rising inflation. Therefore, the shift to the left leads to an increase in prices as there is more demand than supply. However, the shift to the left also causes output to decrease as there are fewer resources available, which reduces the amount of goods and services produced.

How Are Prices and Output Affected When the Long-Run Aggregate