Exhibit 14A-4 Macro AD-AS Model In Exhibit 14A-4, the self-correction argument is that in the long run competition:
A) from unemployed workers causes an increase in nominal wages and a leftward shift in SRAS.
B) from unemployed workers causes a rightward shift in SRAS.
C) among firms for workers increases nominal wages and this causes a leftward shift in SRAS.
D) among consumers causes an increase in the CPI and a rightward shift in SRAS.

Question

Exhibit 14A-4  Macro AD-AS Model  In Exhibit 14A-4, the self-correction argument is that in the long run competition:
A) from unemployed workers causes an increase in nominal wages and a leftward shift in SRAS. 
B) from unemployed workers causes a rightward shift in SRAS. 
C) among firms for workers increases nominal wages and this causes a leftward shift in SRAS. 
D) among consumers causes an increase in the CPI and a rightward shift in SRAS.

Quizplus · Accepted Answer

The self-correction argument suggests that in the long run, competition among firms for workers will cause an increase in nominal wages, which will lead to a rightward shift in SRAS as workers become more productive and firms invest in new technology. This will ultimately result in a new equilibrium with a lower price level and higher output than in the short run. Option A is incorrect because an increase in nominal wages would cause a leftward shift in SRAS, not the other way around. Option C is incorrect because competition among firms for workers would lead to an increase in nominal wages, not a decrease. Option D is also incorrect because competition among consumers would not have any direct effect on the production side of the economy.

Exhibit 14A-4 Macro AD-AS Model in Exhibit 14A-4, the Self-Correction