In a short-run macroeconomic equilibrium, real GDP exceeds potential GDP. If aggregate demand does not change, then the
A) long-run aggregate supply curve will shift leftward as the money wage rate rises.
B) short-run aggregate supply curve will shift rightward as the money wage rate falls.
C) long-run aggregate supply curve will shift leftward as the money wage rate falls.
D) short-run aggregate supply curve will shift leftward as the money wage rate rises.

Question

Quizplus · Accepted Answer

In a short-run macroeconomic equilibrium where real GDP exceeds potential GDP, the economy is operating above its full-employment level of output, leading to upward pressure on wages as unemployment falls. This leads to higher production costs and a leftward shift in the short-run aggregate supply curve. The long-run aggregate supply curve is not affected in the short run but will shift leftward over time as the economy adjusts to the higher price level and wages. Therefore, the correct answer is D - the short-run aggregate supply curve will shift leftward as the money wage rate rises.

In a Short-Run Macroeconomic Equilibrium, Real GDP Exceeds Potential GDP