-Assume that the economy depicted in Panel (a)of Exhibit 20A-1 is in short-run equilibrium where AD equals SRAS₁.If the economy is left to correct itself according to classical theory:
A) wages will fall as long as real GDP is above Yp.
B) lower wages will result in a shift from SRAS₁ to SRAS₂.
C) long-run equilibrium will be established at Yp and P₃.
D) all of the above will take place.

Question

-Assume that the economy depicted in Panel (a)of Exhibit 20A-1 is in short-run equilibrium where AD equals SRAS₁.If the economy is left to correct itself according to classical theory:
A) wages will fall as long as real GDP is above Yp. 
B) lower wages will result in a shift from SRAS₁ to SRAS₂. 
C) long-run equilibrium will be established at Yp and P₃. 
D) all of the above will take place.

Quizplus · Accepted Answer

The Answer is B

-Assume That the Economy Depicted in Panel (A)of Exhibit 20A-1