When output is below its full-employment level,the short-run aggregate supply curve will shift down and to the right because
A) the expected price level will be below the actual price level.
B) workers' wages will decline.
C) prices of nonlabor inputs will rise.
D) workers' wages will rise.

Question

Quizplus · Accepted Answer

When output is below its full-employment level, it typically leads to higher unemployment and underutilized resources. This situation puts downward pressure on workers' wages because the supply of labor exceeds demand. Lower wages reduce the cost of production for firms, which can lead to an increase in the short-run aggregate supply (SRAS), represented by a shift down and to the right on the SRAS curve.

When Output Is Below Its Full-Employment Level,the Short-Run Aggregate Supply