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

A positive supply shock would initially shift the AS curve to the right, leading to an increase in output and a decrease in the price level. During the adjustment process, however, the economy may experience an increase in wages and other factor prices, which would shift the AS curve back to the left. This is because higher factor prices would increase the cost of production, leading to a decrease in aggregate supply. Therefore, an increase in wages and other factor prices (choice E) would be the best choice for shifting the AS curve leftward during the adjustment process.

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