Can someone explain Krugman's argument that "thereâs no adverse effect at all of the wage increase on output"? http://www.princeton.edu/~pkrugman/nominal_wage.pdf Krugman says that: "Now suppose that the evil New Deal pushes up nominal wages. This shifts the AS curve up, which leads to a higher price level and lower output:" I do not understand why we cannot also have a shfit in AD curve at the same time. AD curve depends on consumer expenditures and if wages increase then the AD will also increase. Thus, even if the AD curve is vertical, the wage increase results in higher output and there is basically no need for an argument. Am I missing something? P.S. I am an enginner but I took several Econ courses.