Suppose the following: (1)the wage rate falls,(2)business taxes decline,(3)any change in SRAS is greater than any change in AD.Based on this information,in the short run Real GDP will __________ and the price level will __________.
A) rise; rise
B) fall; rise
C) fall; fall
D) rise; fall
E) none of the above

Question

Quizplus · Accepted Answer

In the short run, a decrease in wage rates and business taxes would cause a decrease in production costs, leading to a rightward shift of the short-run aggregate supply (SRAS) curve. As the change in SRAS is greater than the change in aggregate demand (AD), the equilibrium point would move to the right, causing an increase in real GDP and a decrease in the price level. Therefore, the correct answer is D, rise in GDP and fall in the price level.

Suppose the Following: (1)the Wage Rate Falls,(2)business Taxes Decline,(3)any Change