The short-run aggregate supply curve is positively sloped because:
A) business people are subject to money illusion.
B) wages are sticky.
C) workers care about nominal wages,not real wages.
D) of diminishing returns to labour.

Question

Quizplus · Accepted Answer

The short-run aggregate supply curve is positively sloped due to sticky wages. In the short-run, prices are inflexible and do not adjust immediately to changes in demand or supply, so when the demand for goods and services increases, firms increase production by hiring more workers without having to increase wages immediately. This leads to a temporary increase in output at a relatively constant cost, resulting in a positively sloped short-run aggregate supply curve.

The Short-Run Aggregate Supply Curve Is Positively Sloped Because