A short-run aggregate supply curve (SRAS) assumes:
A) the CPI is fixed.
B) each point on the SRAS is potential real GDP.
C) fixed or sticky nominal wages.
D) nominal wages vary directly with price changes.

Question

​ A short-run aggregate supply curve (SRAS) assumes:
A) ​the CPI is fixed.
B) ​each point on the SRAS is potential real GDP.
C) fixed or sticky nominal wages.
D) ​nominal wages vary directly with price changes.

Quizplus · Accepted Answer

The short-run aggregate supply curve (SRAS) assumes fixed or sticky nominal wages, meaning that wages do not adjust immediately to changes in prices. This is because it takes time for workers and businesses to negotiate and change wage rates. As a result, the SRAS curve slopes upward in the short-run as output can increase with higher prices due to firms receiving higher revenue while costs remain constant. However, in the long-run, nominal wages can adjust to changes in prices, causing the SRAS curve to shift back to its original position at potential GDP.

​ a Short-Run Aggregate Supply Curve (SRAS) Assumes

a Short-Run Aggregate Supply Curve (SRAS) Assumes