Assuming the economy is experiencing a recessionary gap, classical economists predict that:
A) wages will remain fixed.
B) monetary policy will sell government securities.
C) higher wages will shift the short-run aggregate supply curve leftward.
D) lower wages will shift the short-run aggregate supply curve rightward.
E) none of the above.

Question

Quizplus · Accepted Answer

According to classical economists, lower wages will shift the short-run aggregate supply curve rightward, as it decreases production costs and increases firm profitability, leading to an increase in output and employment, and thus closing the recessionary gap.

Assuming the Economy Is Experiencing a Recessionary Gap, Classical Economists