If current output deviates from potential output, the short-run aggregate supply curve may shift because:
A)aggregate demand has to shift.
B)potential output will have to shift.
C)input costs (including wages) adjust.
D)the economy's long-run growth rate will have to adjust.

Question

Quizplus · Accepted Answer

If current output deviates from potential output, it is likely that input costs, including wages, will adjust in response to changes in demand and supply in the market. This will cause the short-run aggregate supply curve to shift, as the cost of producing output changes. Option A is incorrect as shifting aggregate demand would affect the overall price level and not necessarily the short-run aggregate supply curve. Option B is incorrect as potential output is an exogenous variable and not affected by changes in output. Option D is incorrect as the long-run growth rate of an economy is largely driven by productivity and technology, and not by changes in short-run output levels.

If Current Output Deviates from Potential Output, the Short-Run Aggregate