A rightward shift of aggregate demand will raise output only if
A) wages remain unchanged.
B) wages rise by a lower percentage than prices.
C) wages rise by the same percentage as prices.
D) wages rise by a greater percentage than prices.

Question

Quizplus · Accepted Answer

A rightward shift of aggregate demand indicates an increase in demand for goods and services, which will lead to an increase in output. However, if wages rise by the same percentage as prices or a greater percentage, then the increase in production costs could offset the increase in output, resulting in little to no change in output. Therefore, for output to increase, wages must rise by a lower percentage than prices.

A Rightward Shift of Aggregate Demand Will Raise Output Only