Final answer:
A decrease in the cost of production leads to a rightward shift of the short-run aggregate supply curve, increasing output and decreasing the price level temporarily; the long-run aggregate supply remains unchanged.
Step-by-step explanation:
Anything that causes the cost of production to temporarily decrease will cause the short-run aggregate supply curve (SRAS) to shift right. Ceteris paribus, this will temporarily increase output and decrease the price level. The rationale behind this is that a decrease in the cost of production makes it more profitable for firms to produce goods, which leads to an increase in the quantity supplied at any given price level, thus shifting the SRAS curve to the right. As the SRAS shifts right, the macroeconomic equilibrium moves to a higher output and a lower price level. However, in the long-run, the aggregate supply (LRAS) is not affected by temporary changes in production costs because prices and wages are flexible, and the economy will return to its potential output.