ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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changes in wages and other resource prices completely offset changes in the price level.
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the price level is flexible upward but inflexible downward.
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supply creates its own demand.
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wages and other resource prices adjust only slowly to changes in the price level.
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Detailed explanation-1: -According to the sticky-wage theory, the short-run aggregate-supply curve slopes upward because nominal wages are slow to adjust to changing economic conditions. In other words, wages are “sticky” in the short run.
Detailed explanation-2: -The short-run aggregate supply curve is upward sloping because the quantity supplied increases when the price rises. In the short-run, firms have one fixed factor of production (usually capital ). When the curve shifts outward the output and real GDP increase at a given price.
Detailed explanation-3: -A decrease in aggregate demand will cause the short-run aggregate supply curve shift to rightward or downward direction because workers and firms will adjust their expectation of wages and prices downwards and they will accept lower wages and prices.
Detailed explanation-4: -Because monetary authorities will raise the real interest rate to keep inflation in check as inflation rises, its aggregate demand curve falls downward. Because inflation goes up when output rises compared to output, the short-run supply curve slopes higher.
Detailed explanation-5: -For example, the short-run aggregate supply curve slopes upward due to the lag between product prices and resource prices that makes it profitable for firms to increase output when the price level rises. The long-run aggregate supply curve is vertical when a country is at full employment.