If wage rates rise at the same time that labor productivity increases,what is the effect on short-run aggregate supply (SRAS)?
A) SRAS rises.
B) SRAS falls.
C) SRAS remains constant.
D) SRAS may rise,fall,or remain constant.

Question

Quizplus · Accepted Answer

The effect of rising wage rates and increased labor productivity on SRAS is ambiguous. If the increase in labor productivity is greater than the increase in wage rates, then SRAS will rise. However, if the increase in wage rates is greater than the increase in labor productivity, then SRAS will fall. If the increase in wage rates and labor productivity are equal, then SRAS will remain constant. Therefore, the best answer is D, as SRAS may rise, fall, or remain constant depending on the magnitude of these changes.

If Wage Rates Rise at the Same Time That Labor