Final answer:
A decrease in input costs shifts the short-run aggregate supply curve to the right on an AD/AS diagram, leading to higher output, lower price levels, and potentially lower unemployment in the short-run.
Step-by-step explanation:
In the context of an aggregate demand/aggregate supply (AD/AS) diagram, a decrease in the cost of an input into the production of goods and services would cause the short-run aggregate supply curve (SRAS) to shift to the right. This graphical representation would show an increase in aggregate supply, which typically leads to a decrease in the overall price level and an increase in total output in the economy, assuming aggregate demand remains constant.
The equilibrium output would increase because production becomes more profitable, spurring businesses to expand production. Conversely, higher output tends to lower the equilibrium price level since the cost savings from lower input prices can be passed on to consumers in the form of lower prices. In the short-run, the outcome in the AD/AS model would also generally result in lower unemployment, as producers demand more labor to increase output.