Which of the following is true of aggregate supply in the long run?
A)Nominal wages and output prices are both fixed.
B)Nominal wages are fixed but output prices can vary.
C)Output prices are fixed.
D)Nominal wages are fully responsive to changes in the price level.

Question

Quizplus · Accepted Answer

In the long run, nominal wages are fully responsive to changes in the price level, meaning that as prices rise, wages will also adjust upwards, resulting in a higher level of output. This is also known as the classical dichotomy, where monetary factors such as changes in the money supply do not affect real variables in the long run. Output prices, on the other hand, can vary in the long run due to changes in technology, input costs, and other factors affecting supply and demand.

Which of the Following Is True of Aggregate Supply in the Long