What can cause the short-run aggregate supply curve to shift to the left?

The short-run aggregate supply (SRAS) curve can shift to the left when the production costs for businesses increase. A significant increase in nominal wages raises the cost of labor, which is a major component of production costs. When firms face higher wage expenses without a corresponding increase in productivity, they may reduce output due to the higher costs, leading to a decrease in the overall supply of goods and services in the economy.

This leftward shift of the SRAS means that for any given price level, less quantity is supplied, potentially leading to inflationary pressures in the economy. Understanding labor costs' impact on production is crucial when analyzing shifts in aggregate supply, especially in the short run, where prices and wages may be sticky and not adjust immediately to changes in economic conditions.

In contrast, government spending, an increase in physical capital, or a decrease in taxes typically boost aggregate demand or enhance the productive capacity of the economy, leading to a rightward shift in the SRAS or an increase in aggregate demand. Therefore, these factors would not result in a leftward shift of the short-run aggregate supply curve.