How does a decrease in aggregate supply affect output and inflation?

1 Answer
Jul 3, 2015

a decrease in the aggregate supply affects output and inflation.


the total products a company supplies is generally known as output as input is the raw materials the company uses in the production process, if a decrease in the average supply is experienced, the output within the economy is decreased, meaning that the current average output within the economy is much lower than that of the previous average.

inflation is affected by the increase and decrease of both demand and supply. in this sense, there is a decrease in the average supply of certain products/commodities.
The decrease along with an unchanged level of demand will cause prices increases, this is according to the laws of demand and supply, the new equilibrium will be placed above the previous equilibrium, causing inflation within the country.