When output exceeds the full employment level of output, we expect that the
A) wages and prices increase as the long- run aggregate supply curve shifts upward over time.
B) wages and prices increase as the short- run aggregate supply curve shifts upward over time.
C) wages and prices decrease as the short- run aggregate supply curve shifts downward over time.
D) wages and prices increase as the long- run aggregate supply curve shifts downward over time.

Question

Quizplus · Accepted Answer

When output exceeds the full employment level, the economy experiences a shortage of resources and a rise in demand. This leads to an increase in prices and wages, which causes the short-run aggregate supply curve to shift upward over time. This shift eventually reaches the long-run, where wages and prices have fully adjusted, causing the long-run aggregate supply curve to also shift upward over time.

When Output Exceeds the Full Employment Level of Output, We