-Refer to the above graph. If the economy moves from point B₃ to point C₃ because of an increase in aggregate demand, then: A) nominal wages will rise, reducing profits and thereby negating the short-run stimulus to production and employment so that the economy moves from C₃ to B₄. B) real wages will rise, reducing profits and thereby negating the short-run stimulus to production and employment so that the economy moves from C₃ to B₃. C) nominal wages will rise, reducing profits and thereby negating the short-run stimulus to production and employment so that the economy moves from C₃ to B₃. D) nominal wages will rise, reducing profits and thereby negating the short-run stimulus to production and employment so that the economy moves from C₃ to C₂.

Question

Quizplus · Accepted Answer

In the long run, nominal wages tend to rise as a response to increased demand, which reduces profits and negates the short-run stimulus, moving the economy back to a lower output level, such as from C₃ to B₄.

-Refer to the Above Graph