Why does the short-run aggregate supply curve shift to the left in the long run,following an increase 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, an increase in aggregate demand leads to firms increasing production by hiring more workers and using more resources. This results in a higher level of output but also leads to higher wages and prices. In the long run, workers and firms adjust their expectations of wages and prices upward, pushing for higher wages and prices. As the cost of production increases, firms are less willing to supply the same amount of output at the higher price level, causing the short-run aggregate supply curve to shift leftward.

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