Rigidities that diminish wage and price flexibility such as long-term contracts suggest that an increase in the expected price level
A)might not translate into complete adjustment of wages and prices.
B)might cause aggregate demand to decrease.
C)might cause aggregate supply to increase.
D)will have no effect on the short-run aggregate supply curve.

Question

Quizplus · Accepted Answer

Long-term contracts suggest that there may be some resistance to changes in wages and prices, which means that an increase in the expected price level may not fully translate into adjustments in wages and prices. This can result in incomplete adjustment and rigidities in the short run.

Rigidities That Diminish Wage and Price Flexibility Such as Long-Term