Short-run aggregate supply decreases if
A) the price level falls.
B) prices for resource inputs fall.
C) prices for resource inputs rise.
D) the price level rises.
E) government transfer payments decrease.

Question

Quizplus · Accepted Answer

Short-run aggregate supply reflects the cost of production, which is largely determined by prices for resource inputs. If prices for resource inputs rise, then the cost of production increases, leading to a decrease in short-run aggregate supply. Choices A and D are the opposite of what would cause a decrease in short-run aggregate supply. Choice B, prices for resource inputs falling, would increase short-run aggregate supply. Choice E, government transfer payments decreasing, would not directly affect short-run aggregate supply.

Short-Run Aggregate Supply Decreases If