-Refer to Figure 13.8. If the AD conditions illustrated persist, the economy's adjustment process will:

Question

Quizplus · Accepted Answer

The adjustment process in an economy facing the conditions illustrated (not visible but inferred from the choice) would typically involve an increase in the rate of wage increase due to the high demand for labor in an overheated economy. This, in turn, raises the cost of production, shifting the Aggregate Supply (AS) curve upwards (to the left) until a new equilibrium is reached where AD intersects AS at a higher price level, thus explaining the choice.