If the short-run aggregate supply curve is horizontal, an increase in union aggressiveness that pushes wages and prices up will result in ______ prices and ______ output in the short run.
A) higher; lower
B) lower; higher
C) higher; higher
D) lower; lower

Question

Quizplus · Accepted Answer

When the short-run aggregate supply curve is horizontal, it implies that output can change without affecting the price level. However, if union aggressiveness increases wages, this increases production costs, leading to higher prices. Since the supply curve is horizontal, the increase in production costs (higher wages) does not increase output; instead, it may reduce output due to higher costs of production, leading to higher prices and lower output.

If the Short-Run Aggregate Supply Curve Is Horizontal, an Increase