When nominal wages increase, the short-run aggregate supply curve:
A) shifts to the right.
B) shifts to the left.
C) remains constant.
D) disappears.

Question

Quizplus · Accepted Answer

When nominal wages increase, the cost of production also increases, which leads to a decrease in short-run aggregate supply. This is because higher wages increase the marginal cost of production, making it less profitable for firms to produce goods and services at the same level of prices as before. Therefore, the short-run aggregate supply curve shifts to the left.

When Nominal Wages Increase, the Short-Run Aggregate Supply Curve