The diagram below shows an AD/AS model for a hypothetical economy.The economy begins in long-run equilibrium at point A. FIGURE 24-4 Refer to Figure 24-4.After the positive aggregate supply shock shown in the diagram,which of the following would shift the AS curve leftward during the economy's adjustment process?
A)an increase in factor supplies
B)an increase in the unemployment rate
C)a decrease in wages and other factor prices
D)an increase in labour productivity
E)an increase in wages and other factor prices

Question

The diagram below shows an AD/AS model for a hypothetical economy.The economy begins in long-run equilibrium at point A.  FIGURE 24-4 Refer to Figure 24-4.After the positive aggregate supply shock shown in the diagram,which of the following would shift the AS curve leftward during the economy's adjustment process?
A)an increase in factor supplies 
B)an increase in the unemployment rate 
C)a decrease in wages and other factor prices 
D)an increase in labour productivity 
E)an increase in wages and other factor prices

Quizplus · Accepted Answer

An increase in wages and other factor prices would shift the AS curve leftward during the adjustment process as it increases the cost of production and decreases the profitability of firms, leading to a decrease in aggregate supply. The other choices would not shift the AS curve leftward as an increase in factor supplies, an increase in labour productivity, and a decrease in wages and other factor prices would shift the AS curve rightward, and an increase in the unemployment rate would shift the AD curve leftward.

The Diagram Below Shows an AD/AS Model for a Hypothetical