-The table above gives the aggregate demand and aggregate supply schedules in Lotus Land. Lotus Land is in short-run macroeconomic equilibrium. In the long run, if aggregate demand does not change, then Lotus Land will return to full employment as
A) the money wage rate rises.
B) the money wage rate falls.
C) businesses cut their imports.
D) the government cuts taxes.

Question

-The table above gives the aggregate demand and aggregate supply schedules in Lotus Land. Lotus Land is in short-run macroeconomic equilibrium. In the long run, if aggregate demand does not change, then Lotus Land will return to full employment as
A) the money wage rate rises. 
B) the money wage rate falls. 
C) businesses cut their imports. 
D) the government cuts taxes.

Quizplus · Accepted Answer

In the long run, if an economy is to return to full employment after a demand shock without any change in aggregate demand, the adjustment typically comes through a change in the money wage rate. Specifically, if the economy is below full employment, the money wage rate tends to fall. This decrease in the money wage rate reduces production costs for businesses, which can lead to an increase in aggregate supply, moving the economy back towards full employment.

-The Table Above Gives the Aggregate Demand and Aggregate Supply