Question

If there is a decrease in the short-run aggregate supply curve and no changes in fiscal policy are implemented, the economy over time will Group of answer choices Remain at the new price and output level Experience a leftward shift in the aggregate demand curve Return to the original output and price level Experience increasing nominal wages Continue to have rising prices and decreasing Real GDP

Answer 1

Answer: Return to the original output and price level

Step-by-step explanation:

There is a general consensus in the Economic world that the Economy will usually adjust back to a level of full employment which is the Long Run Aggregate Supply curve.

When the short short-run aggregate supply curve experiences a decrease, the variables at play will adjust to such a point where they will return to the Original Output and price level assuming that was the Long Run AS level. For instance, if the price of a raw material needed in production rises, output will decrease as the inputs have become more expensive. As a result of this decrease in output, unemployment goes up which will theoretically mean that wages will go down as there are now more people looking for jobs. This will reduce the wage cost and producers will take advantage to start producing more bringing the Economy back to the original level.