Macro AD-AS Model
In Exhibit 10A-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

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Macro AD-AS Model
In Exhibit 10A-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

According to the self-correction argument, in the long run, competition from unemployed workers causes firms to increase wages, which attracts more workers and shifts the SRAS curve to the right. This process continues until the economy reaches its potential output level at the natural rate of unemployment. Therefore, the correct answer is B, which states that competition from unemployed workers causes a rightward shift in SRAS.

​ Macro AD-AS Model

Macro AD-AS Model