The table above gives the aggregate demand and aggregate supply schedules in Lotus Land. Lotus Land is in short- run macroeconomic equilibrium. In the long run, if aggregate demand does not change then Lotus Land will return to full- employment as .
A) businesses cut their imports
B) the money wage rate falls
C) the money wage rate rises
D) the government cuts taxes

Question

Quizplus · Accepted Answer

In the long run, if aggregate demand does not change, Lotus Land will return to full-employment as the money wage rate falls. This is because in the short run, there is an excess supply of labor which puts downward pressure on wages. As wages fall, firms can produce at a lower cost, leading to an increase in aggregate supply. This process continues until the economy reaches full-employment.

The Table Above Gives the Aggregate Demand and Aggregate Supply