Use the following to answer questions: -(Figure: AD-AS) Refer to Figure: AD-AS. Suppose that the economy starts at E₁ and moves to E₂, where AD₂intersects SRAS_1. SRAS₁willshift to SRAS₂because: A) real wages rise in the long run. B) nominal wages rise in the long run. C) the real money supply rises in the long run. D) aggregate real output rises in the long run.

Question

Quizplus · Accepted Answer

The shift from SRAS1 to SRAS2 in the AD-AS model typically occurs due to an increase in nominal wages in the long run. As the economy moves to a new equilibrium with higher prices, workers and firms adjust their expectations and contracts, leading to higher nominal wages to maintain real purchasing power, which in turn shifts the short-run aggregate supply (SRAS) curve.

Use the Following to Answer Questions