When output is below its full-employment level, the short-run aggregate supply will shift down and to the right because
A)the expected price level will be below the actual price level.
B)workers' wages will decline.
C)prices of nonlabor inputs will rise.
D)workers' wages will rise.

Question

Quizplus · Accepted Answer

When output is below its full-employment level, there is typically slack in the labor market, leading to downward pressure on wages. As wages decline, production costs decrease, allowing firms to supply more at each price level, shifting the short-run aggregate supply curve down and to the right.

When Output Is Below Its Full-Employment Level, the Short-Run Aggregate