Suppose that the aggregate output level is lower than potential output. Which statement is FALSE?
A) Workers are abundant.
B) Jobs are scarce.
C) Nominal wages will fall over time.
D) The short-run aggregate supply curve will gradually shift to the left.

Question

Quizplus · Accepted Answer

When the aggregate output level is lower than potential output, it indicates an economy operating below its full capacity. In such a scenario, workers are indeed abundant, and jobs are scarce, which can lead to a fall in nominal wages over time as the supply of labor exceeds demand. However, the short-run aggregate supply curve (SRAS) is expected to shift to the right, not to the left, as firms increase production to meet potential output, making choice D false.

Suppose That the Aggregate Output Level Is Lower Than Potential