When output exceeds its full-employment level
A) the short-run aggregate supply curve shifts to the left.
B) wages fall.
C) the short-run aggregate supply curve shifts to the right.
D) aggregate supply exceeds aggregate demand.

Question

Quizplus · Accepted Answer

When output exceeds its full-employment level, it means that the economy is producing more than its potential output. This leads to a shortage of labor and other resources, which causes the cost of production to increase. This, in turn, leads to a decrease in aggregate supply as suppliers are unable to produce as much as they would like. Therefore, the short-run aggregate supply curve shifts to the left.

When Output Exceeds Its Full-Employment Level