Final answer:
An increase in the prices of important inputs like energy would lead to a decrease in aggregate supply (option b), causing the short run aggregate supply curve to shift to the left. This results in a lower equilibrium level of GDP, higher unemployment, and higher price levels.
Step-by-step explanation:
When considering how an increase in the prices of important inputs like energy affects aggregate supply, it's crucial to understand the relationship between input costs and the short run aggregate supply (SRAS) curve. In the context of the SRAS, if output prices increase while input prices remain constant, producers are more inclined to supply more goods because their profit margins increase.
However, if the input prices rise, such as a significant increase in energy costs, this will tend to decrease aggregate supply. The reason is that higher input costs eat into profits and make production less attractive. Consequently, the SRAS curve will shift to the left, signaling that at each price level, less output is supplied than before. The result of a leftward shift in the SRAS curve is a lower equilibrium level of GDP, higher unemployment rates, and rising price levels, which could potentially lead to stagflation, the combination of stagnant economic growth and inflation.