The aggregate supply curve is shifted inward by an increase in the price of any input, but it cannot be shifted outward unless the nation's labor supply and capital stock also increase. The aggregate supply curve is shifted inward by a technological breakthrough that increases the productivity of the labor force. The aggregate supply curve a. is generally flatter as the degree of resource utilization rises. The economy's self-correcting mechanism a. is more efficient at curing inflationary gaps through inflation than at curing recessionary gaps through deflation. None of the above is correct.
Inflation increases the multiplier above that suggested by the oversimplified formula.
Inflation reduces the multiplier below that suggested by the oversimplified formula. Inflation does not change the multiplier as determined by the oversimplified formula. Inflation increases the multiplier unless unemployment levels also rise. If the economy is experiencing an inflationary gap, a. wages typically rise and shift the aggregate supply curve to the right, reducing the gap. Most economists agree that a recessionary gap a. may not be self-correcting except in the long run, because prices and wages fall only reluctantly when demand is weak.