ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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leftward shift of the AD curve.
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rightward shift of the AS curve.
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leftward shift of AS curve.
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rightward shift of the AD curve.
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Detailed explanation-1: -As costs increases the supplier cannot not afford to supply as much at every price level as used to be the case. A leftward shift of the aggregate supply curve will cause prices to increase. This is called cost-push inflation.
Detailed explanation-2: -In the case of cost-push inflation, if there is an increase in the cost of production of commodities due to a rise in the average and marginal costs of production, it causes the supply curve of a commodity to shift to the left.
Detailed explanation-3: -The cost-push inflation can also be illustrated with the aggregate demand and supply curves. Consider Fig. 23.3, where aggregate supply and demand are measured along the X-axis and price level along the Y-axis. AD is the aggregate demand curve and AS1 and AS2 curves are aggregate supply curves.
Detailed explanation-4: -10. True or False: Cost-push inflation is caused by a rightward shift in the short-run aggregate supply curve. False. Cost-push inflation is caused by a leftward shift in the short-run aggregate supply curve.
Detailed explanation-5: -Increases in the price of such inputs cause the SRAS curve to shift to the left, which means that at each given price level for outputs, a higher price for inputs will discourage production because it will reduce the possibilities for earning profits.