If efficiency wages became more common, where would the long-run Phillips curve and the long-run aggregate-supply curve shift?
A) Both the long-run Phillips curve and the long-run aggregate-supply curve would shift right.
B) Both the long-run Phillips curve and the long-run aggregate-supply curve would shift left.
C) The long-run Phillips curve would shift right, and the long-run aggregate-supply curve would shift left.
D) The long-run Phillips curve would shift left, and the long-run aggregate-supply curve would shift right.

Question

Quizplus · Accepted Answer

Efficiency wages increase the cost of production and shift the long-run aggregate-supply curve to the left. However, they also increase worker productivity and reduce turnover, leading to lower unemployment rates in the long run. This causes the long-run Phillips curve to shift to the right. Therefore, both the long-run Phillips curve and the long-run aggregate-supply curve shift, but in opposite directions.

If Efficiency Wages Became More Common, Where Would the Long-Run