Why does the short-run aggregate supply curve shift to the right in the long run,following a decrease in aggregate demand?
A)Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices.
B)Workers and firms adjust their expectations of wages and prices downward and they push for higher wages and prices.
C)Workers and firms adjust their expectations of wages and prices upward and they push for higher wages and prices.
D)Workers and firms adjust their expectations of wages and prices upward and they accept lower wages and prices.

Question

Quizplus · Accepted Answer

In the short run, a decrease in aggregate demand leads to lower prices and output. However, over time, workers and firms adjust their expectations of wages and prices downward, which allows for lower wages and prices to be accepted in the long run. This leads to a decrease in production costs and an increase in short-run aggregate supply, shifting the curve to the right.

Why Does the Short-Run Aggregate Supply Curve Shift to the Right