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Refer to the information provided in the figure below to answer the question that follows
Refer to the information provided in the figure below to answer the question that follows. AS Price level. P 110 AD 600 Aggregate output (income), Y (5 billion) Suppose the equilibrium output is initially $600 billion. A decrease in wages and an increase in government spending will, for sure, increase A the price level B. equilibrium output and decrease the price level. C. equilibrium output D. both the equilibrium output and the price level.
Expert Solution
A fall in the wage level will cause the AS curve to shift rightward as the quantity supplied at any price level increases.
An increase will shift the AD curve to rightward as overall income in the economy will rise.
If both AD and AS shift rightward/ outward, the rise in AD curve to the right will compensate the lower price (due to AS curve sifting rightward). So at the new equilibirum, only the output will increase and ther price would be the SAME at 110 level.
Correct answer is C. equilibrium output.
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