If the government of Econia raises the minimum wage, what impact will this have on the average price level and output level of the country?
A) It will shift the short-run aggregate supply curve to the left, leading to a higher price level and lower output.
B) It will shift the short-run aggregate supply curve to the right, leading to a lower price level and higher output.
C) It will shift the short-run aggregate supply curve to the left, leading to a lower price level and higher output.
D) It will shift the short-run aggregate supply curve to the right, leading to a higher price level and lower output.

Question

Quizplus · Accepted Answer

Raising the minimum wage will increase the costs of production for businesses. As a result, the short-run aggregate supply curve will shift to the left, leading to higher prices and lower output. This is because businesses will produce less due to the higher costs of labor, which will result in less output. The higher prices will be due to the increase in production costs being passed on to consumers.

If the Government of Econia Raises the Minimum Wage, What