Exhibit 14A-4 Macro AD-AS Model

-In Exhibit 14A-4,the self-correction argument is that in the long run competition:
A) from unemployed workers causes an increase in nominal wages and a leftward shift in SRAS.
B) from unemployed workers causes a rightward shift in SRAS.
C) among firms for workers increases nominal wages and this causes a leftward shift in SRAS.
D) among consumers causes an increase in the CPI and a rightward shift in SRAS.

Question

Exhibit 14A-4 Macro AD-AS Model
 
-In Exhibit 14A-4,the self-correction argument is that in the long run competition:
A) from unemployed workers causes an increase in nominal wages and a leftward shift in SRAS. 
B) from unemployed workers causes a rightward shift in SRAS. 
C) among firms for workers increases nominal wages and this causes a leftward shift in SRAS. 
D) among consumers causes an increase in the CPI and a rightward shift in SRAS.

Quizplus · Accepted Answer

The self-correction argument is that in the long run, competition from unemployed workers (i.e. greater availability of labor) causes a rightward shift in SRAS as firms lower wages and thus reduce their costs of production. This leads to lower prices and a return to the natural level of output.