Suppose Short-Run Aggregate Supply Shifts to the Left Because of a Decrease

question 210

Multiple Choice

Suppose short-run aggregate supply shifts to the left because of a decrease in the supply of steel. The Federal Reserve fights the resulting recession with expansionary monetary policy. This will

• A) increase interest rates.
• B) decrease inflation.
• C) cause inflation.
• D) increase unemployment.

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Definitions:

Demand Schedule

A table that shows the quantity of a good or service that consumers wish to buy at each price level.

Output

The quantity of goods or services produced by a firm, industry, or economy in a given period.

X-inefficiency

X-inefficiency occurs when a firm produces outputs at higher costs than is necessary, often due to a lack of competitive pressure or motivation.

Economies of Scale

Reductions in the average cost of production as the volume of production increases.