An inflation shock that shifts the short-run aggregate supply curve leftward and leaves the long-run supply curve unchanged means the economy's potential level of output will:
A) increase.
B) not change.
C) decrease.
D) decrease only if monetary policymakers do not respond.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve represents the economy's potential level of output, which remains unchanged if the shift only affects the short-run aggregate supply curve.

An Inflation Shock That Shifts the Short-Run Aggregate Supply Curve