If efficiency wages became more common,
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 productivity and work effort of employees, which lowers firms' costs and raises the potential output of the economy over time. This leads to a rightward shift of the long-run Phillips curve. However, since higher wages increase firms' costs in the short run, the short-run aggregate supply curve shifts leftward. If firms continue to pay efficiency wages, their employees will likely become more productive over time, which shifts the long-run aggregate supply curve rightward. Therefore, the correct option is (C) - the long-run Phillips curve would shift right, and the long-run aggregate supply curve would shift left.

If Efficiency Wages Became More Common