If the economy is experiencing an inflationary output gap,the adjustment process operates as follows:
A)Wages do not adjust,but the AD curve shifts to the right.
B)Wages fall,unit costs fall,and the AD curve shifts rightward.
C)Wages rise,unit costs rise,and the AS curve shifts leftward.
D)Wages rise,unit costs rise,and the AS curve shifts rightward.
E)Wages fall,unit costs fall,and the AS curve shifts rightward.

Question

Quizplus · Accepted Answer

In an inflationary output gap, the economy is producing above its potential output, leading to increased demand for labor and thus higher wages. As wages rise, unit costs for businesses increase, which typically results in the aggregate supply (AS) curve shifting leftward, indicating a decrease in the total quantity of goods and services that firms are willing to produce at each price level.

If the Economy Is Experiencing an Inflationary Output Gap,the Adjustment