In the contract theory of wages,if workers and firms agree to enter into contracts in which their money wage adjusts automatically to changes in the actual price level,then aggregate supply
A)slopes upward and to the right.
B)shifts upward.
C)is horizontal.
D)is vertical.

Question

Quizplus · Accepted Answer

In the contract theory of wages, if workers and firms agree to contracts that adjust wages automatically with changes in the actual price level, it implies that real wages remain constant regardless of changes in the price level. This situation leads to an aggregate supply curve that is vertical, indicating that the quantity of goods and services supplied does not change in response to changes in the price level.

In the Contract Theory of Wages,if Workers and Firms Agree