The upward-sloping AS-curve will shift eventually to the left if
A)labor productivity increases
B)actual output is lower than the full-employment level
C)actual output is higher than the full-employment level
D)the markup over labor cost falls
E)the level of potential output increases

Question

Quizplus · Accepted Answer

The upward-sloping AS-curve represents the relationship between the price level and the level of output supplied by firms. If the actual output is higher than the full employment level, it indicates that there is excess demand in the economy, causing firms to produce more output to meet the rising demand. This will lead to an increase in the price level, causing a movement up the AS-curve. However, as firms approach their maximum output capacity, they will need to hire more workers and pay higher wages to increase production further. This will cause an increase in their costs and a leftward shift of the AS-curve as they become less willing to supply output at the same price level. Therefore, option C is the correct choice.

The Upward-Sloping AS-Curve Will Shift Eventually to the Left If