A positive supply shock from falling input prices shifts
A) both the SAS and AD curves rightward.
B) both the SAS and LAS curves leftward.
C) the SAS curve rightward but leaves the LAS curve unchanged.
D) the LAS curve rightward but leaves the SAS curve unchanged.
E) both the SAS and LAS curves rightward.

Question

Quizplus · Accepted Answer

A positive supply shock from falling input prices will shift the short-run aggregate supply (SAS) curve to the right, as firms can now produce more output at every price level. However, it will not shift the long-run aggregate supply (LAS) curve because the shock does not affect the potential output of the economy. Therefore, the correct choice is C, the SAS curve rightward but leaves the LAS curve unchanged.

A Positive Supply Shock from Falling Input Prices Shifts