When the federal government passes a bill to increase the minimum wage, it primarily affects the cost of labor, which is a crucial component of short-run aggregate supply (SRAS). An increase in the minimum wage raises the wages that employers must pay their workers, which can lead to higher production costs for businesses.
As firms face higher wage costs, they may reduce their output in the short run because the higher costs can squeeze profit margins. Consequently, the increase in minimum wage can shift the short-run aggregate supply curve to the left, indicating a decrease in the quantity of goods and services supplied at a given price level. This shift can also contribute to inflationary pressure in the economy if businesses pass on the increased labor costs to consumers in the form of higher prices.