If labour productivity increases by 15 percent,under which of the following circumstances will a change in wages lead to a decrease in short-run aggregate supply?
A)if wages increase by 20 percent
B)if wages increase by 15 percent
C)if wages increase by 10 percent
D)if wages are stable

Question

Quizplus · Accepted Answer

When labour productivity increases by 15 percent, it means that the economy is able to produce more output with the same amount of labour input. This leads to a decrease in costs and an increase in profits for firms. Therefore, they may be willing to pay higher wages to workers to retain them. However, if wages increase by 20 percent, it will increase costs for firms and reduce their profits. This will lead to a decrease in short-run aggregate supply as firms may reduce output or go out of business.

If Labour Productivity Increases by 15 Percent,under Which of the Following