Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggregate
A) demand curve will shift leftward.
B) supply curve will shift rightward.
C) supply curve will shift leftward.
D) expenditures curve will shift downward.

Question

Quizplus · Accepted Answer

A fall in nominal wages and an increase in productivity would result in lower costs for firms. This would cause the supply curve to shift rightward as firms can produce more at any given price level. This would lead to a lower equilibrium price level and a higher quantity of output, assuming that aggregate demand remains unchanged.

Suppose That Nominal Wages Fall and Productivity Rises in a Particular