Use the Following to Answer Questions

Use the following to answer questions :
Figure: Output Gap
-(Figure: Output Gap) Look at the figure Output Gap. If the economy is at Y₂ because of contractionary monetary policy and no further policy is implemented, in the long run nominal wages will _____ and shift the short-run aggregate supply curve to the _____, which will _____ real output.

A) increase; left; decrease
B) increase; right; increase
C) decrease; left; decrease
D) decrease; right; increase

Correct Answer:

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