-Refer to Figure 15-14.Suppose a supply shock moves the economy from point A to point B.In the long run,we would expect
A) the increase in real GDP to increase wages and shift the aggregate demand curve to the right
B) the increase in real GDP to increase wages and shift the aggregate supply curve back to AS1
C) the decrease in the price level to encourage buying and shift the aggregate demand curve to the right
D) wages to fall,causing the aggregate supply curve to shift rightward until full employment is restored
E) the economy to remain at point B.

Question

-Refer to Figure 15-14.Suppose a supply shock moves the economy from point A to point B.In the long run,we would expect
A) the increase in real GDP to increase wages and shift the aggregate demand curve to the right 
B) the increase in real GDP to increase wages and shift the aggregate supply curve back to AS1 
C) the decrease in the price level to encourage buying and shift the aggregate demand curve to the right 
D) wages to fall,causing the aggregate supply curve to shift rightward until full employment is restored 
E) the economy to remain at point B.

Quizplus · Accepted Answer

In the long run, the economy tends to return to its natural level of output. An increase in real GDP due to a supply shock will eventually lead to higher wages, which increases production costs and shifts the aggregate supply curve back to its original position (AS1), restoring the economy to its long-run equilibrium.