FIGURE 24-5

-Refer to Figure 24-5.The economy is not in long-run equilibrium at E1 because the
A)AD1 curve will shift back to AD0 due to an increase in the price level.
B)AD1 curve will shift back to the left due to a fall in current consumption.
C)AS will shift to the left due to an increase in wages.
D)AS will shift to the left due to an increase in the price level.
E)AS will shift to the right due to a decrease in the price level.

Question

FIGURE 24-5

-Refer to Figure 24-5.The economy is not in long-run equilibrium at E1 because the
A)AD1 curve will shift back to AD0 due to an increase in the price level. 
B)AD1 curve will shift back to the left due to a fall in current consumption. 
C)AS will shift to the left due to an increase in wages. 
D)AS will shift to the left due to an increase in the price level. 
E)AS will shift to the right due to a decrease in the price level.

Quizplus · Accepted Answer

The economy is not in long-run equilibrium at E1 because, typically, an increase in the price level leads to higher wages as workers demand more pay to keep up with the cost of living. This increase in wages can cause the aggregate supply (AS) curve to shift to the left, as it becomes more expensive for firms to produce goods and services.

FIGURE 24-5 -Refer to Figure 24-5.The Economy Is Not in Long-Run Equilibrium