In an AD/AS model, if the economy is below its long-run output, what will happen in the long run if the markets are left alone?
A) AD will shift left.
B) AD will shift right.
C) SRAS will shift left.
D) SRAS will shift right.

Question

Quizplus · Accepted Answer

In the long run, if the economy is below its long-run output, wages and resource prices will adjust downward, leading to an increase in short-run aggregate supply (SRAS) as production becomes cheaper, shifting SRAS to the right.

In an AD/AS Model, If the Economy Is Below Its