Exhibit 20A-1 Policy Alternatives Assume that the economy depicted in Panel (a) of Exhibit 20A-1 is in short-run equilibrium where AD equals SRAS₁. If the economy is left to correct itself according to classical theory: A) wages will fall as long as real GDP is above Y_p. B) lower wages will result in a shift from SRAS₁ to SRAS₂. C) long-run equilibrium will be established at Y_p and P₃. D) all of the above will take place.

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The Answer of Exhibit 20A-1 Policy Alternatives Assume that the economy depicted in Panel (a) of Exhibit 20A-1 is in short-run equilibrium where AD equals SRAS₁. If the economy is left to correct itself according to classical theory: A) wages will fall as long as real GDP is above Y_p. B) lower wages will result in a shift from SRAS₁ to SRAS₂. C) long-run equilibrium will be established at Y_p and P₃. D) all of the above will take place.

Exhibit 20A-1 Policy Alternatives Assume That the Economy Depicted in Panel