-Refer to Figure 5.7. If equilibrium is determined by AS and AD_1: A) input prices will fall and output will rise in the long run. B) both input prices and output will fall in the long run. C) input prices will rise and output will fall in the long run. D) both input prices and output will rise in the long run.

Question

Quizplus · Accepted Answer

In the long run, if the economy is below full employment equilibrium (AD₁ is less than potential output), input prices will fall due to excess supply in the labor market, leading to an increase in output as the economy moves back to full employment.