How does the aggregate demand and aggregate supply model reflect a rise in wage rates?
A) The short-run aggregate-supply curve shifts to the right.
B) The short-run aggregate-supply curve shifts to the left.
C) The aggregate-demand curve shifts to the right.
D) The aggregate-demand curve shifts to the left.

Question

Quizplus · Accepted Answer

A rise in wage rates will increase production costs and decrease profitability for firms, causing them to supply less at any given price level in the short-run. This means the short-run aggregate-supply curve will shift to the left.

How Does the Aggregate Demand and Aggregate Supply Model Reflect