Which of the following would happen as the wage rate gradually adjusts following a shock?
A) Nothing will change
B) A shift of the production possibilities frontier
C) A shift in the short-run aggregate supply curve
D) A shift in the aggregate demand curve
E) A shift in the long-run aggregate supply curve.

Question

Quizplus · Accepted Answer

A shock to the economy, such as a change in technology or a natural disaster, may lead to a temporary shift in the short-run aggregate supply (SRAS) curve. In the short run, it causes a change in the wage rate, which can impact the production costs in the economy. As the wage rate gradually adjusts, it affects firms' costs, leading to the shift of the SRAS curve until the economy reaches a new equilibrium. Therefore, a shift in the SRAS curve is the most appropriate choice.

Which of the Following Would Happen as the Wage Rate