-Refer to Figure 15-15.Suppose the economy is producing Y₁ and a supply shock moves the economy from AS₁ to AS₂.In the long run,we would expect
A) falling wages to shift aggregate supply back to AS₁
B) rising wages to cause a further upward shift of the aggregate supply curve
C) the decrease in real GDP to shift the aggregate demand curve to the left
D) the increase in the price level to decrease aggregate demand
E) output to remain at the new equilibrium.

Question

-Refer to Figure 15-15.Suppose the economy is producing Y₁ and a supply shock moves the economy from AS₁ to AS₂.In the long run,we would expect
A) falling wages to shift aggregate supply back to AS₁ 
B) rising wages to cause a further upward shift of the aggregate supply curve 
C) the decrease in real GDP to shift the aggregate demand curve to the left 
D) the increase in the price level to decrease aggregate demand 
E) output to remain at the new equilibrium.

Quizplus · Accepted Answer

In the long run, the economy will return to its natural level of output, Y*, regardless of the supply shock.