Explain what happens to the short-run aggregate supply curve when output exceeds its potential
What will be an ideal response?
When output exceeds potential GDP, the high volume of output produced raises the demand for labor. The higher labor demand, in turn, bids up wages, increasing firms' labor costs. As a result, the short-run aggregate supply curve will eventually shift to the left because at any given price level firms will supply less output when their costs are higher.
You might also like to view...
Using a graph, show the effects of a weaker dollar on the economy. Explain
What will be an ideal response?
There are two can companies, American and National, which have entered into a collusive agreement. The payoff matrix of economic profits is above. If both firms cheat on the collusive agreement, what amount of economic profit is made by American?
A) $0 B) $3,000 C) $4,000 D) -$2,000