In a short-run macroeconomic equilibrium, potential GDP exceeds real GDP. If aggregate demand does not change, then the
A) short-run aggregate supply curve will shift leftward as the money wage rate rises.
B) short-run aggregate supply curve will shift rightward as the money wage rate falls.
C) long-run aggregate supply curve will shift leftward as the money wage rate rises.
D) long-run aggregate supply curve will shift leftward as the money wage rate falls.

Question

Quizplus · Accepted Answer

In a short-run equilibrium where potential GDP exceeds real GDP, there are unused resources in the economy. As a result, firms can increase production without increasing prices by hiring more workers and increasing output. This causes the short-run aggregate supply curve to shift rightward as the money wage rate falls. This process continues until real GDP reaches potential GDP and the economy reaches long-run equilibrium. Therefore, the correct answer is B as the short-run aggregate supply curve shifts rightward, not leftward as stated in options A and C. Option D is also incorrect as a fall in the money wage rate would cause the long-run aggregate supply curve to shift rightward, not leftward.

In a Short-Run Macroeconomic Equilibrium, Potential GDP Exceeds Real GDP