If the prices of inputs changes, what will happen to the aggregate supply curve?
A)It does not move but the economy moves along the curve.
B)It depends on whether the input prices rise or fall.
C)The curve will become flatter or steeper depending on whether the input prices rise or fall.
D)It shifts inward or outward depending on whether the input prices rise or fall.

Question

Quizplus · Accepted Answer

If the prices of inputs increase, the cost of production increases and firms will produce less output at every price level, resulting in a leftward shift of the aggregate supply curve, indicating a decrease in the equilibrium level of real GDP and an increase in the equilibrium price level. On the other hand, if the prices of inputs decrease, firms will be willing and able to produce more output at every price level, resulting in a rightward shift of the aggregate supply curve, indicating an increase in the equilibrium level of real GDP and a decrease in the equilibrium price level.

If the Prices of Inputs Changes, What Will Happen to the Aggregate