If the price level falls and the money wage rate does not change,some firms ________ and there is ________.
A)shut down;a leftward shift of the aggregate supply curve
B)start up;a rightward shift of the aggregate supply curve
C)shut down;a decrease in the quantity of real GDP supplied
D)shut down;a decrease in potential GDP
E)start up;an increase in potential GDP

Question

Quizplus · Accepted Answer

If the price level falls and the money wage rate does not change, firms will face lower revenue but their production costs will stay the same. This will lead to a decrease in profits and some firms may shut down. As a result, there will be a decrease in the quantity of real GDP supplied, corresponding to a leftward shift of the short-run aggregate supply curve. Option A, B, D, and E are incorrect because they do not accurately describe the effect of a fall in the price level with no change in the money wage rate.

If the Price Level Falls and the Money Wage Rate