11.3 The Final Equilibrium
Refer to the information provided in Figure 11.6 below to answer the questions that follow. Figure 11.6
-Refer to Figure 11.6. Suppose the equilibrium output is initially $600 billion. A decrease in wages and an increase in government spending will, for sure, increase
A) both the equilibrium output and the price level.
B) the price level.
C) equilibrium output.
D) equilibrium output and decrease the price level.

Question

11.3 The Final Equilibrium
Refer to the information provided in Figure 11.6 below to answer the questions that follow.  Figure 11.6
-Refer to Figure 11.6. Suppose the equilibrium output is initially $600 billion. A decrease in wages and an increase in government spending will, for sure, increase
A) both the equilibrium output and the price level. 
B) the price level. 
C) equilibrium output. 
D) equilibrium output and decrease the price level.

Quizplus · Accepted Answer

A decrease in wages will lead to a decrease in production costs and an increase in government spending will lead to an increase in aggregate demand. Both of these factors will shift the aggregate demand curve to the right, leading to an increase in equilibrium output. The effect on the price level is uncertain and depends on the slopes of the aggregate supply and demand curves.

11.3 the Final Equilibrium