If the short-run output is more than the potential output, then in the long run, the nominal wage will _____ and output will:
A) fall; fall.
B) rise; fall.
C) fall; rise.
D) rise; rise.

Question

Quizplus · Accepted Answer

In the long run, if the short-run output is more than the potential output, firms will demand more labor to meet production needs, leading to an increase in nominal wages. As labor becomes more expensive, firms will reduce production, causing output to fall back towards its potential level.

If the Short-Run Output Is More Than the Potential Output