Consider the basic AD/AS model.If major labour unions succeed in increasing wages across the economy,the AS curve will shift
A)downward (to the right),reducing the price level.
B)downward (to the right)and then return immediately to its original position.
C)upward (to the left)and then return immediately to its original position.
D)upward (to the left),increasing the price level.
E)None of the above; there will no effect on the AS curve.

Question

Quizplus · Accepted Answer

When major labor unions succeed in increasing wages across the economy, it leads to an increase in production costs for firms. This, in turn, causes a leftward shift of the short-run AS curve, indicating a decrease in output and an increase in the price level. Thus, the correct choice is D - upward (to the left), increasing the price level.

Consider the Basic AD/AS Model