For this question,assume that expectations of P and A are correct.Now suppose that there is a 4% increase in A.Given this information,which of the following will occur?
A)The PS relation will shift up by 4%.
B)The WS relation will shift up by less than 4%.
C)The WS relation will shift down by 4%.
D)The PS relation will shift down by 4%.

Question

Quizplus · Accepted Answer

The PS (price-setting) relation will shift up by 4% because an increase in A (productivity) directly increases the price-setting power of firms, allowing them to set higher prices for the same cost, thus shifting the PS curve upwards.

For This Question,assume That Expectations of P and a Are