In a scenario of rising wages due to increased aggregate demand, what is likely to happen to production costs?

When aggregate demand increases, it often leads to higher wages as businesses compete for labor to meet the elevated demand for goods and services. As wages rise, the cost of labor, which is a significant component of overall production costs, also increases. This rise in production costs may then lead firms to either pass these costs onto consumers in the form of higher prices or adjust their production strategies to maintain profitability.

In summary, the relationship between rising aggregate demand and production costs is direct; as demand puts upward pressure on wages, production costs are likely to rise, impacting the overall economic environment.