Increases in the costs of production will shift the short-run aggregate supply curve to the left.

Question

Quizplus · Accepted Answer

An increase in the costs of production, such as a rise in wages, raw material prices, or energy costs, will reduce the profitability of businesses, leading to a decline in output and employment in the short run. This will cause a shift in the short-run aggregate supply (SRAS) curve to the left, indicating a lower potential output at any given price level. The leftward shift of the SRAS curve will result in higher price levels and lower real GDP, creating cost-push inflation.

Increases in the Costs of Production Will Shift the Short-Run