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Why does the short-run aggregate supply curve shift to the right in the long run, following a decrease in aggregate demand?

a. Workers and firms adjust their expectations of wages and prices upward and they accept lower wages and prices.
b. Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices.
c. Workers and firms adjust their expectations of wages and prices downward and they push for higher wages and prices.
d. Workers and firms adjust their expectations of wages and prices upward and they push for higher wages and prices.

User Sunreef
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The correct answer is b. Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices.

In the short run, a decrease in aggregate demand can lead to lower prices and wages as firms and workers adjust to the new economic conditions. This, in turn, shifts the short-run aggregate supply curve to the right. Over time, as expectations adjust and wages and prices become more flexible, the economy moves to a new equilibrium in the long run, where the aggregate supply curve returns to its original position. However, in the long run, the price level is lower than it was initially, reflecting the lower aggregate demand.
User DenCowboy
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