Suppose the economy is at a short-run equilibrium GDP that lies above potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?
A)output will increase
B)prices will decline
C)unemployment will decline
D)aggregate supply will shift to the left

Question

Quizplus · Accepted Answer

When the economy is above potential GDP, it is operating beyond its sustainable capacity, leading to upward pressure on prices and wages. This causes the short-run aggregate supply to shift to the left, reducing output back to potential GDP.

Suppose the Economy Is at a Short-Run Equilibrium GDP That