Exhibit 10.2

-Refer to Exhibit 10.2, which shows the short-run aggregate supply curve of an economy. If the economy is currently producing at Y₂, long-run equilibrium will most likely be established by a(n) _____
A) increase in short-run aggregate supply.
B) decrease in short-run aggregate supply.
C) decrease in potential output.
D) increase in potential output.
E) rightward shift of the aggregate demand curve.

Question

Exhibit 10.2
 
-Refer to Exhibit 10.2, which shows the short-run aggregate supply curve of an economy. If the economy is currently producing at Y₂, long-run equilibrium will most likely be established by a(n) _____
A) increase in short-run aggregate supply. 
B) decrease in short-run aggregate supply. 
C) decrease in potential output. 
D) increase in potential output. 
E) rightward shift of the aggregate demand curve.

Quizplus · Accepted Answer

In the short run, if the economy is producing above its potential output (Y₂), it will likely lead to increased costs and wages, causing the short-run aggregate supply to decrease, moving the economy back to long-run equilibrium.

Exhibit 10.2 -Refer to Exhibit 10.2, Which Shows the Short-Run Aggregate Supply