Suppose the economy is at a short-run equilibrium GDP that lies above potential GDP.Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?

Question

Quizplus · Accepted Answer

In the short run, when GDP is above potential, the economy is overheating, leading to higher prices and wages. This causes the short-run aggregate supply to shift left, reducing output back to potential GDP.

Suppose the Economy Is at a Short-Run Equilibrium GDP That