ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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sticky-wage theory of the short-run aggregate supply curve.
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classical dichotomy theory of the short-run aggregate supply curve.
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misperceptions theory of the short-run aggregate supply curve.
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sticky-price theory of the short-run aggregate supply curve.
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Detailed explanation-1: -When the price level rises, the nominal wage remains fixed because this is solely based on the dollar amount of the wage. The real wage, on the other hand, falls because this is based on the purchasing power of the wage. A higher price level means that a given wage is able to purchase fewer goods and services.
Detailed explanation-2: -In the short run, there is an increase in output and the price level. c. Over time, nominal wages, prices, and perceptions will adjust to this new price level. As a result, the short-run aggregate-supply curve will shift to the left.
Detailed explanation-3: -When the price level increases, producers are willing to make more and hire more workers because sticky wages make them a better bargain. On the other hand, when the price level decreases, producers are willing to make less because sticky wages make workers not as good of a deal and producers sell less.
Detailed explanation-4: -The short-run aggregate supply curve is upward sloping because the quantity supplied increases when the price rises.