If workers actively demand pay increases when the price level is rising and are willing to accept pay cuts when the price level is falling,then the short-run aggregate supply curve would be
A) negatively sloped.
B) nearly vertical.
C) nearly horizontal.
D) positively sloped as usual.
E) always shifting to the right or the left.

Question

Quizplus · Accepted Answer

If workers are willing to accept pay cuts when the price level is falling, it suggests that they have flexible wages. In such a scenario, the short-run aggregate supply curve is nearly vertical because changes in price level have little effect on the quantity supplied since wages adjust quickly. On the other hand, when workers actively demand pay increases when the price level is rising, it suggests that the wages are sticky, leading to a negatively sloped short-run aggregate supply curve. However, since the question suggests that workers are willing to accept pay cuts, it implies that wages are flexible, leading to a nearly vertical short-run aggregate supply curve.

If Workers Actively Demand Pay Increases When the Price Level