No Bull Economics Lessons

Macroeconomics & Microeconomics Concepts You Must Know

Macroeconomic Performance (4 of 10)

Question 4:
When there is a leftward shift of the aggregate supply curve, prices _______ and the economy experiences _______.

A.  rise; cost-push inflation
B.  rise; demand-pull inflation
C.  fall; demand-push deflation
D.  fall; cost-pull deflation

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Correct Answer: A, rise; cost-push inflation. An increase in resource costs can shift aggregate supply to the left causing an increase in the general price level. This is a type of cost-push inflation and also stagflation (high inflation and unemployment).