If foreign input prices increase and the United States purchases those inputs,then the U.S.
A) AD curve will shift leftward and U.S. prices will fall.
B) AD curve will shift rightward and U.S. prices will rise.
C) SRAS curve will shift leftward and U.S. prices will rise.
D) SRAS curve will shift rightward and U.S. prices will fall

Question

Quizplus · Accepted Answer

If foreign input prices increase and the United States purchases those inputs, then we can expect an increase in the cost of production for U.S. firms, leading to a leftward shift of the short-run aggregate supply (SRAS) curve. As a result, U.S. prices will rise. This is because as the cost of production increases, producers will have to charge higher prices to maintain their profit margins. Therefore, Choice C is the best answer. Choices A and B are incorrect because they do not take into account the effects of higher input prices on the cost of production. Choice D is also incorrect because a rightward shift of the SRAS curve would lead to lower prices, which is opposite of our expectation.

If Foreign Input Prices Increase and the United States Purchases