Question: 3 mechanism that will eventually return the economy to potential output. 4 At the short - run equilibrium there is upward pressure on wages. As
mechanism that will eventually return the economy to potential output.
At the shortrun equilibrium there is upward pressure on wages. As wages increase the shortrun aggregate supply curve will shift upleft
The increase in wages leads to increased productivity, which shifts the longrun aggregate supply curve to the right, balancing the economy at its current output level.
With higher wages, consumer spending decreases due to increased savings, causing the aggregate demand curve to shift left, and bringing the economy back to its potential output.
As wages increase, the demand for goods and services rises, shifting the aggregate demand curve to the right, which stabilizes the economy at a new higher output level.
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