In the medium run the aggregate supply curve is upward sloping since
A. workers immediately realize that nominal wage increases are really the result of price increases.
B. firms encounter costs in resetting prices and are reluctant to change wages following a change in demand.
C. wages and prices always immediately change in proportion to the money stock.
D. there is always natural friction in the labor market that prevents unemployment from reaching zero.
E. none of the above
Aggregate Supply Curve:
Aggregate supply curve expresses the relationship between output and general price level, graphically. The aggregate supply curve, in short run, is almost horizontal in shape. In medium run, the curve is upward slopping and in long run it is vertical.
Answer and Explanation: 1
In the medium run the aggregate supply curve is upward sloping since -
- B. firms encounter costs in resetting prices and are reluctant to change wages...
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fromChapter 7 / Lesson 7
Learn the definitions of aggregate supply and aggregate demand. See the determinants of aggregate supply, the determinants of aggregate demand, and what causes them to shift.