The economy is initially in long-run equilibrium. The import price of the raw materials it uses for production now falls due to a worldwide oversupply. In the short run:

the aggregate demand curve does not shift and the short-run aggregate supply curve shifts left.

the aggregate demand curve shifts left and the short-run aggregate supply curve does not shift.

the aggregate demand curve does not shift and the short-run aggregate supply curve shifts right.

the aggregate demand curve shifts right and the short-run aggregate supply curve does not shift.

the aggregate demand curves shifts left and the short-run aggregate supply curve shifts right.

Expert Solution

● the aggregate demand curve does not shift and the short-run aggregate supply curve shifts right.

Reason- When the input prices falls, it now costs less to produce each unit of output. So production increases and supply rises. Short run Aggregate supply curve shifts to the right. Aggregate demand curve is not directly changed by changes in the input prices.

Rahul Sunny answered 2 years ago

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