Figure 15-2
-In Figure 15-2,suppose the economy is initially at a short run equilibrium at point C and there is an unanticipated decrease in the money wage rate.Which point represents the new short run equilibrium?

Question

Figure 15-2 
-In Figure 15-2,suppose the economy is initially at a short run equilibrium at point C and there is an unanticipated decrease in the money wage rate.Which point represents the new short run equilibrium?

Quizplus · Accepted Answer

An unanticipated decrease in the money wage rate will shift the short-run aggregate supply curve to the right from SRAS1 to SRAS2. The intersection of SRAS2 and AD1 occurs at point B, which represents the new short-run equilibrium. At this point, output increases while the price level decreases, compared to the initial equilibrium at point C.

Figure 15-2 -In Figure 15-2,suppose the Economy Is Initially at a Short