**Question:**Starting at long run equilibrium, ceteris paribus, an increase in the costs of widely used factors of production would most likely:- O Increase short run aggregate supply and create an inflationary gap.- O Decrease long run aggregate supply and create a recessionary gap.- O Decrease short run aggregate supply and create a recessionary gap.- O Decrease aggregate demand and create a recessionary gap.**Explanation:**This question explores the impact of increased production costs on aggregate supply and demand. An increase in widely used production costs typically affects the aggregate supply curve.- **Option 1**: An increase in costs would not increase short run aggregate supply, so this option is unlikely.- **Option 2**: A decrease in long run aggregate supply due to cost increases is possible, but the immediate effect is generally on short run aggregate supply.- **Option 3**: Decreased short run aggregate supply due to higher costs can create higher prices and lower output, leading to a recessionary gap.- **Option 4**: This option discusses aggregate demand, which is less directly impacted by increased production costs than aggregate supply.Overall, the most plausible effect of rising production costs, holding other factors constant (ceteris paribus), would be a decrease in short run aggregate supply, leading to a recessionary gap.

Cost of production is a non price determinant for aggregate supply. Changes in the cost of…

Starting at long run equilibrium, ceteris paribus, an increase in the costs of widely used factors of production would most likely Increase short run aggregate supply and create an inflationary gap. Decrease long run aggregate supply and create a recessionary gap. Decrease short run aggregate supply and create a recessionary gap. O Decrease aggregate demand and create a recessionary gap.

Starting at long run equilibrium, ceteris paribus, an increase in the costs of widely used factors of production would most likely Increase short run aggregate supply and create an inflationary gap. Decrease long run aggregate supply and create a recessionary gap. Decrease short run aggregate supply and create a recessionary gap. O Decrease aggregate demand and create a recessionary gap.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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