Consider the basic AD/AS model. If major labour unions succeed in increasing wages across the economy, the AS curve will shift
A)upward (to the left), increasing the price level.
B)downward (to the right)and then return immediately to its original position.
C)downward (to the right), reducing the price level.
D)upward (to the left)and then return immediately to its original position.
E)none of the above -- there will no effect on the AS curve.

Question

Quizplus · Accepted Answer

If major labour unions succeed in increasing wages, firms will face higher costs of production, leading to a decrease in their profits. This will result in a decrease in the quantity of goods and services supplied at each price level. Therefore, the AS curve will shift upward and to the left, reducing output and increasing the price level.

Consider the Basic AD/AS Model