Which of the following statement regarding aggregate supply is CORRECT?
A) Moving along the long-run aggregate supply curve, both the price level and the money wage rate change by the same percentage.
B) Moving along the short-run aggregate supply curve, both the price level and the money wage rate change by the same percentage.
C) Moving along the long-run aggregate supply curve, the money wage rate changes but the price level is constant.
D) Moving along the short-run aggregate supply curve, the money wage rate changes but the price level is constant.

Question

Quizplus · Accepted Answer

In the long-run aggregate supply (LRAS), both the price level and the money wage rate change by the same percentage, allowing the economy to return to its natural level of output without changing the unemployment rate. This reflects the classical dichotomy, where real variables (like output) are not affected by nominal variables (like the price level) in the long run.

Which of the Following Statement Regarding Aggregate Supply Is CORRECT