In Figure 28.7, how does the unemployment rate at points B and C compare to the unemployment rate at point A? Under the sticky wage explanation of the SRAS curve, how does the real wage at points B and C compare to the real wage at point A?

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FIGURE 28.7 Contraction in Aggregate Demand A fall in AD, which might be due to a wave of pessimism in the economy, is represented with a leftward shift in the AD curve from AD, to AD. The economy moves from point A to point B. Output falls from Y, to Y2, and the price level falls from P, to P. Over time, as wages, prices and perceptions adjust, the SRAS curve shifts to the right from AS, to AS, and the economy reaches point C, where the new AD curve crosses the LRAS curve. The price level falls to P3, 2. ... causes output to fall in the short run ... Price level P P2 P3 Long-run aggregate Short-run aggregate supply, AS supply 0 Y2 Y AD2 and output returns to its natural rate, Y,. AS2 3.... but over time, the short-run aggregate supply curve shifts... 1. A decrease in aggregate demand... Aggregate demand, AD 4. ... and output returns to its natural rate. Quantity of output