If GDP is ________ potential output, then we expect to see ________ wages, causing the short-run aggregate supply curve to shift up.
A) above; increasing
B) above; decreasing
C) below; increasing
D) below; decreasing

Question

Quizplus · Accepted Answer

If GDP is above potential output, it means that the economy is producing more than what it is capable of producing in the long-run. This situation leads to a tightening labor market, which drives up wages due to increased demand for workers. As a result, the short-run aggregate supply curve shifts up.

If GDP Is ________ Potential Output, Then We Expect to See