Autoworkers agree to a cut in the nominal wage rate.This event _______ short- run aggregate supply and _______ long- run aggregate supply.
A)increases; does not change;
B)does not change; does not change
C)decreases; does not change
D)increases; increases
E)decreases; does not change;

Question

Quizplus · Accepted Answer

A decrease in the nominal wage rate reduces the cost of production for firms, leading to an increase in short-run aggregate supply as firms are willing to produce more at every price level. However, it does not change the long-run aggregate supply, which is determined by factors like technology, resources, and institutions, not by the price level or nominal wages.

Autoworkers Agree to a Cut in the Nominal Wage Rate