If potential output exceeds actual output, ________ shifts downward over time.
A) the short-run AS curve
B) the short-run AD curve
C) the long-run AS curve
D) the long-run AD curve

Question

Quizplus · Accepted Answer

When potential output exceeds actual output, it indicates that the economy is not utilizing its resources fully. Over time, this leads to adjustments in prices and wages downwards, causing the short-run aggregate supply (AS) curve to shift downward as producers are willing to supply more at lower prices.

If Potential Output Exceeds Actual Output, ________ Shifts Downward Over