Suppose that the money prices of raw materials increase so that short-run aggregate supply decreases.If the Reserve Bank does NOT respond,the higher money price of raw materials will i.repeatedly shift the aggregate demand curve rightward and raise the price level.
Ii)shift the aggregate demand curve rightward and the aggregate supply curve leftward,raising prices.
Iii)result initially in lower employment and a higher price level.
A)iii only
B)i and iii
C)i and ii
D)ii and iii
E)i only

Question

Quizplus · Accepted Answer

When the short-run aggregate supply decreases due to higher raw material prices, it initially results in lower employment and a higher price level, as production costs increase and output decreases. The aggregate demand curve does not shift rightward repeatedly without further external factors.

Suppose That the Money Prices of Raw Materials Increase So