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 price level is 110. An increase 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 price level is 110. An increase 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

An increase in wages increases production costs, leading to a decrease in supply (shifting the aggregate supply curve to the left), which increases the price level. An increase in government spending increases aggregate demand (shifting the aggregate demand curve to the right), also increasing the price level. The net effect on output is uncertain without more information, as it depends on the relative shifts of the supply and demand curves. However, the price level will for sure increase.

11.3 the Final Equilibrium