Rising input prices shift SAS leftward but leave LAS unchanged.

Question

Quizplus · Accepted Answer

An increase in input prices will increase the cost of production for firms, causing a decrease in their short-run aggregate supply (SAS) as they are less willing to supply goods and services at each price level. This means SAS shifts leftward. However, it does not affect long-run aggregate supply (LAS) since LAS is determined by the economy's productive capacity, such as technology and capital stock, and is not affected by changes in input prices.

Rising Input Prices Shift SAS Leftward but Leave LAS Unchanged