If the short-run macroeconomic equilibrium occurs in the upward-sloping range of the short-run aggregate supply curve and government increases personal income tax, then which of the following will be true in the long run?
A) The nominal wage of workers will be lower compared to what it was in the short run.
B) Output will be lower compared to what it was in the short run.
C) The nominal wage of workers will be higher compared to what it was in the short run.
D) The price level will be higher compared to what it was in the short run.

Question

Quizplus · Accepted Answer

In the long run, the economy will move along the long-run aggregate supply curve, which is vertical. This means that output will not change, but the price level will increase. The nominal wage of workers will also increase, as workers demand higher wages to compensate for the higher cost of living.

If the Short-Run Macroeconomic Equilibrium Occurs in the Upward-Sloping Range