This graph shows the short-run aggregate supply curve (SRAS) of a hypothetical economy where the currency is the dollar. Last year, the economy was producing at point A. The price level was 145 and the quantity of real GDP supplied was $500 billion. This year, the economy is producing at point B. The price level has fallen to 135 and the quantity of real GDP supplied has fallen to $300 billion and nominal wages were constant as the price level changed. Government officials are confused about why the quantity of output moved from point A to point B, and they ask you for help. Short-Run Aggregate Supply 160 SRAS 156 150 145 140 135 130 125 120 100 200 300 400 500 600 700 800 REAL GDP (Billions of dollars) Since nominal wages were constant as the price level changed, you explain that a decrease in the price level leads to in real wages. This, in turn, leads to which of the following? O Workers mistakenly believe that their real wages have risen and supply more labor. O Firms hire fewer workers. O Workers mistakenly believe that their real wages have fallen and supply less labor. O Firms hire more workers. Ultimately, a decrease in the price level leads to v being produced in the short run. PRICE LEVEL

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
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Chapter1: Making Economics Decisions
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This graph shows the short-run aggregate supply curve (SRAS) of a hypothetical economy where the currency is the dollar. Last year, the economy
was producing at point A. The price level was 145 and the quantity of real GDP supplied was $500 billion. This year, the economy is producing at point
B. The price level has fallen to 135 and the quantity of real GDP supplied has fallen to $300 billion and nominal wages were constant as the price level
changed. Government officials are confused about why the quantity of output moved from point A to point B, and they ask you for help.
Short-Run Aggregate Supply
160
SRAS
155
150
145
140
135
130
125
120
100
200
300
400
500
600
700
800
REAL GDP (Billions of dollars)
Since nominal wages were constant as the price level changed, you explain that a decrease in the price level leads to
in real wages.
This, in turn, leads to which of the following?
O Workers mistakenly believe that their real wages have risen and supply more labor.
O Firms hire fewer workers.
Workers mistakenly believe that their real wages have fallen and supply less labor.
O Firms hire more workers.
Ultimately, a decrease in the price level leads to
v being produced in the short run.
PRICE LEVEL
Transcribed Image Text:This graph shows the short-run aggregate supply curve (SRAS) of a hypothetical economy where the currency is the dollar. Last year, the economy was producing at point A. The price level was 145 and the quantity of real GDP supplied was $500 billion. This year, the economy is producing at point B. The price level has fallen to 135 and the quantity of real GDP supplied has fallen to $300 billion and nominal wages were constant as the price level changed. Government officials are confused about why the quantity of output moved from point A to point B, and they ask you for help. Short-Run Aggregate Supply 160 SRAS 155 150 145 140 135 130 125 120 100 200 300 400 500 600 700 800 REAL GDP (Billions of dollars) Since nominal wages were constant as the price level changed, you explain that a decrease in the price level leads to in real wages. This, in turn, leads to which of the following? O Workers mistakenly believe that their real wages have risen and supply more labor. O Firms hire fewer workers. Workers mistakenly believe that their real wages have fallen and supply less labor. O Firms hire more workers. Ultimately, a decrease in the price level leads to v being produced in the short run. PRICE LEVEL
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