Final answer:
An increase in costs of production leads to a reduction in short-run aggregate supply, impacting economic output and employment negatively.
Explanation:
An increase in the costs of the factors of production will cause a reduction in short-run aggregate supply (SRAS). When the prices of factors of production, such as labor or natural resources, increase, production becomes more expensive, leading to a leftward shift in the SRAS curve.
This shift signifies that at each price level, the economy produces less, potentially resulting in reduced GDP, increased unemployment, and other negative effects as shown in economic models.
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