Question

Within the AD/AS model, which one of the following adjustments will cause the economy to return to its long-run capacity when output is temporarily greater than the economy's long-run potential?

a. Lower wage rates and resource prices reduce short-run aggregate supply.
b. Lower interest rates increase aggregate demand and, thereby, stimulate output.
c. Higher wage rates and resource prices reduce short-run aggregate supply.
d. A decrease in prices reduces aggregate demand.

Answer 1

Answer and Explanation:

Option C is the correct answer

C. Higher wage rates and resource prices reduce short-run aggregate supply.