Other things constant, a decrease in resource prices will lead to
A) reduced profits and a reduction in short-run aggregate supply.
B) increased profits and a reduction in short-run aggregate supply.
C) reduced profits and an increase in short-run aggregate supply.
D) increased profits and an increase in short-run aggregate supply.

Question

Quizplus · Accepted Answer

A decrease in resource prices means that firms can produce goods at a lower cost, which increases their profits. This also encourages firms to increase production, leading to an increase in short-run aggregate supply.

Other Things Constant, a Decrease in Resource Prices Will Lead