The following question are based on the following diagram, in which existing aggregate supply and demand curves are AS₀ and AD₀, respectively:

-Significant increases in strategic input prices will
A) shift the aggregate demand curve to AD₁.
B) leave the aggregate demand and supply unchanged.
C) shift the aggregate supply curve to AS₂.
D) shift the aggregate supply curve to AS₁.
E) shift aggregate demand to AD₁ and aggregate supply to AS₂.

Question

The following question are based on the following diagram, in which existing aggregate supply and demand curves are AS₀ and AD₀, respectively:
 
-Significant increases in strategic input prices will
A) shift the aggregate demand curve to AD₁. 
B) leave the aggregate demand and supply unchanged. 
C) shift the aggregate supply curve to AS₂. 
D) shift the aggregate supply curve to AS₁. 
E) shift aggregate demand to AD₁ and aggregate supply to AS₂.

Quizplus · Accepted Answer

Significant increases in strategic input prices will cause a decrease in aggregate supply as it becomes more expensive for firms to produce goods and services. This will shift the aggregate supply curve to the left from AS₀ to AS₁. The aggregate demand curve will remain unchanged as the increase in input prices does not affect consumer demand. Therefore, the correct choice is D - shift the aggregate supply curve to AS₁.

The Following Question Are Based on the Following Diagram, in Which