Question

If the cost of labor increases, will the AS or AD curve shift? In which direction...

If the cost of labor increases, will the AS or AD curve shift? In which direction will it move?

A. The AS curve will shift inward
B. The AS curve will shift outward
C. The AD curve will shift inward
D. The AD curve will shift outward
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Homework Answers

Answer #1

Increase in the cost of labor possibly donot make any change in the aggregate demand. Hence, the correct answer will be A. THE AS CURVE WILL SHIFT INWARD.

The AS will be affected by the cost of production like wages, materials, taxes, etc. Any increase in these expenses will lead a higher cost of production. A higher cost of production reduces the production and the supply also. Hence the AS curve will shift lefthand side or there will be inward shift in the curve.

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