If the economy is at potential output and the Bank of Canada decreases the money supply so that actual output is less than potential output,eventually nominal wages will_____ and short-run aggregate supply will _____.

Question

Quizplus · Accepted Answer

When the money supply is decreased, it leads to lower demand, causing actual output to fall below potential output. Over time, nominal wages will decrease due to lower demand for labor, which will eventually increase short-run aggregate supply as production costs fall.

If the Economy Is at Potential Output and the Bank