In the AS-AD model presented in lectures, the money wage rate is _________ along the Short-Run Aggregate Supply (SAS) curve and a change in the money wage rate causes a __________ of the SAS curveGroup of answer choicesvariable; flatteningvariable; steepeningconstant; shiftconstant; steepening
Question
In the AS-AD model presented in lectures, the money wage rate is _________ along the Short-Run Aggregate Supply (SAS) curve and a change in the money wage rate causes a __________ of the SAS curveGroup of answer choicesvariable; flatteningvariable; steepeningconstant; shiftconstant; steepening
Solution
In the AS-AD model presented in lectures, the money wage rate is constant along the Short-Run Aggregate Supply (SAS) curve and a change in the money wage rate causes a shift of the SAS curve.
Here's why:
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The Short-Run Aggregate Supply (SAS) curve is drawn under the assumption that the money wage rate (and other resource prices) are constant. This is because in the short run, these prices are often fixed by contracts and do not respond quickly to changes in economic conditions.
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If there is a change in the money wage rate, it would cause a shift in the SAS curve. This is because the money wage rate is a determinant of the SAS. If the money wage rate increases, firms' costs of production rise and they reduce the quantity of real GDP they are willing and able to produce at each price level, causing the SAS curve to shift to the left. Conversely, if the money wage rate decreases, firms' costs of production fall and they increase the quantity of real GDP they are willing and able to produce at each price level, causing the SAS curve to shift to the right.
Similar Questions
Explain why in the AS-AD model presented in lectures the short-run aggregate supply (SAS) curve slopes upward
In the AS-AD model presented in lecturesX: a decrease in the price of variable inputs will shift the Short-Run Aggregate Supply (SAS) curve to the left; andY: a collapse of business confidence will shift the Aggregate Demand (AD) curve to the right.
In the AD-AS model, the leftward shift in the aggregate supply curve may be due to ( ).A.Otherwise unchanged and monetary wage increase.B.All other things being equal, the price of raw materials has risen.C.Other things being equal, labour productivity declines.D.All of the above are possible.
In the AD-AS Model, if the central bank implements an expansionary monetary policy (such as lowering interest rates), which of the following options most accurately describes the short-term changes in the Aggregate Demand (AD) curve and the Short-Run Aggregate Supply (SRAS) curve?A.AD shifts to the right; SRAS remains unchanged.B.AD shifts to the left; SRAS shifts to the right.C.AD remains unchanged; SRAS shifts to the left.D.AD shifts to the right; SRAS shifts to the left.
The aggregate supply (AS) curve presented in the chapter has its particular shape because of which of the following explanations?Question 10Select one:a.An increase in the nominal wage causes a reduction in the amount of output that firms are willing to produce.b.A reduction in the aggregate price level causes a reduction in nominal money demand and a reduction in the interest rate.c.An increase in the aggregate price level will cause an increase in the interest rate and a reduction in output.d.An increase in output causes an increase in employment, a reduction in unemployment, an increase in the nominal wage and an increase in the price level.
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