Higher resource costs shift the
A) long-run aggregate supply curve leftward, decreasing real GDP and increasing potential GDP.
B) short-run aggregate supply curve leftward, raising the price level and decreasing potential GDP.
C) short-run aggregate supply curve leftward, raising the price level and decreasing real GDP so it is less than potential GDP.
D) short-run aggregate supply curve rightward, raising the price level and decreasing real GDP so it is less than potential GDP.

Question

Quizplus · Accepted Answer

Higher resource costs make production more expensive, which decreases the quantity of goods and services that businesses are willing to supply at any given price level. This is represented by a leftward shift of the short-run aggregate supply curve, which raises the price level (due to the higher costs of production) and decreases real GDP, making it less than potential GDP. Potential GDP is not directly affected by short-term changes in resource costs; it represents the economy's maximum sustainable output given its resources, technology, and institutional structure.

Higher Resource Costs Shift the