In the aggregate demand-aggregate supply model,which of these changes is most likely when the cost of production increases in the long run?
A)A leftward shift of the short-run aggregate supply curve
B)A leftward shift of the short-run aggregate demand curve
C)A rightward shift of the short-run aggregate supply curve
D)An increase in the potential output level increases.
E)A decrease in the actual price level decreases.

Question

Quizplus · Accepted Answer

When the cost of production increases in the long run, firms will produce less output for any given price level. As a result, the short-run aggregate supply curve will shift leftward, indicating a decrease in the quantity of goods and services supplied at every price level. This leads to a decrease in real GDP and an increase in the price level, which is consistent with a leftward shift in the aggregate demand curve. However, since the question specifically asks about changes in the long run, the most appropriate answer is A: a leftward shift of the short-run aggregate supply curve.

In the Aggregate Demand-Aggregate Supply Model,which of These Changes Is