Assume that an economy is operating beyond its productive capacity and there is no government intervention.Suppose workers and other resource suppliers negotiate higher resource payments.What will be the effect on the short-run aggregate supply curve?
A) The short-run aggregate supply curve will shift leftward.
B) A leftward movement will occur along a fixed short-run aggregate supply curve.
C) The short-run aggregate supply curve will NOT shift.
D) The short-run aggregate supply curve will shift rightward.

Question

Assume that an economy is operating beyond its productive capacity and there is no government intervention.Suppose workers and other resource suppliers negotiate higher resource payments.What will be the effect on the short-run aggregate supply curve?  
A) The short-run aggregate supply curve will shift leftward. 
B) A leftward movement will occur along a fixed short-run aggregate supply curve. 
C) The short-run aggregate supply curve will NOT shift. 
D) The short-run aggregate supply curve will shift rightward.

Quizplus · Accepted Answer

When workers and other resource suppliers negotiate higher resource payments, the cost of production increases. This leads to a decrease in the quantity of goods and services that businesses are willing to supply at any given price level, causing the short-run aggregate supply curve to shift leftward.

Assume That an Economy Is Operating Beyond Its Productive Capacity