Final answer:
The correct answer is option a. Increasing input prices in Xurbia's industrial sector lead to a leftward shift of the AS curve, resulting in lower GDP, higher unemployment, and higher inflation, a state known as stagflation.
Step-by-step explanation:
When input prices within the industrial sector of a nation like Xurbia increase, it affects the nation's aggregate supply (AS) curve. Widely used inputs such as labor and energy products, when becoming more expensive, result in a leftward shift of the Short-Run Aggregate Supply (SRAS) curve. This shift signifies that at every price level, the production becomes less profitable, thus reducing the quantity of goods and services that businesses are willing and able to supply at those price levels. Consequently, this shift to the left results in a lower real Gross Domestic Product (GDP), increased unemployment, and higher price levels, a phenomenon often referred to as stagflation.
The historical instances of recessions in the U.S. economy during periods of high oil prices, such as those in 1974-1975, 1980–1982, 1990–91, 2001, and 2007-2009, exemplify the macroeconomic impact of rising input costs. Such economic conditions are directly linked to leftward shifts in the SRAS curve, bringing about a stagnant economy with high unemployment and inflation.
The correct answer to the student's question is: a. It shifts the AS curve to the left.