Suppose the price level, the money wage, and the price of all other resources rise by 10 percent. This set of changes leads to
A) an upward movement along the LAS curve.
B) an upward movement along the SAS curve.
C) a downward movement along the LAS curve.
D) a leftward shift of the LAS curve.

Question

Quizplus · Accepted Answer

An increase in the price level, money wage, and the price of all other resources would lead to an increase in production costs, causing a leftward shift of the SAS curve. However, since all prices have increased by the same percentage, the relative prices and production decisions remain unchanged. As a result, the economy moves up along the LAS curve. Therefore, the correct choice is (A), an upward movement along the LAS curve.

Suppose the Price Level, the Money Wage, and the Price