-Refer to the above graph.If the economy moves from point B₃ to point C₃ because of an increase in aggregate demand,then: A) Refer to the above graph.If the economy moves from point B₃ to point C₃ because of an increase in aggregate demand,then: B) real wages will rise,reducing profits and thereby negating the short-run stimulus to production and employment so that the economy moves from C₃ to B₃. C) nominal wages will rise,reducing profits and thereby negating the short-run stimulus to production and employment so that the economy moves from C₃ to B₃. D) nominal wages will rise,reducing profits and thereby negating the short-run stimulus to production and employment so that the economy moves from C₃ to C₂.

Question

Quizplus · Accepted Answer

An increase in aggregate demand will shift the AD curve to the right, leading to an increase in output and employment. However, if nominal wages rise, this will reduce profits and thereby negate the short-run stimulus to production and employment. As a result, the economy will move from C3 to B3.

-Refer to the Above Graph