In the fooling model,AD/SAS equilibria to the right of LAS are unstable because ________ nominal wages shift ________.
A)falling,AD downward
B)falling,SAS downward
C)rising,AD upward
D)rising,SAS upward

Question

Quizplus · Accepted Answer

In the fooling model, when AD/SAS equilibria are to the right of LAS, it indicates an economy operating above its potential output, leading to rising nominal wages. Rising wages increase production costs, causing the Short-Run Aggregate Supply (SAS) curve to shift upward, making the equilibrium unstable.

In the Fooling Model,AD/SAS Equilibria to the Right of LAS