Assume that Macroland is a country that imports 70% of the inputs used in its production and 40% of the products consumed. It has an overall trade balance. Which event would cause Macroland's short-run aggregate supply curve to shift to the left?
A) an increase in the average education level of the labor force
B) a depreciation in the value of Macroland's currency
C) an increase in consumption taxes and a decrease in corporate income taxes
D) a surge in the value of stocks exchanged on Macroland's stock market

Question

Quizplus · Accepted Answer

A depreciation in the value of Macroland's currency would increase the cost of imports, which would raise the prices of inputs used in production. This, in turn, would cause a leftward shift in the short-run aggregate supply curve due to higher costs of production for Macroland firms.

Assume That Macroland Is a Country That Imports 70% of the Inputs