Consider an economy in a stable state where the prevailing real wage is consistent with both firms' profit-maximizing price levels and the wage required to motivate employees, resulting in a stable level of employment. A new government policy is then implemented, causing an economy-wide increase in the wage that workers are willing to accept for any given level of employment. Which statement best analyzes the immediate effect of this policy on the economy's initial stability?

Mechanism of Policy-Induced Disequilibrium

An economy is initially in a stable state where the prevailing wage aligns with both firms' profit-maximizing pricing strategies and worker motivation. A new government policy is then introduced. Arrange the following events in the logical sequence that describes how this policy disrupts the initial stability.

Distinction Between Short-Run and Long-Run Policy Effects