Each SP curve is drawn assuming
A)Pe as embodied in wage contracts is "fixed."
B)Pe and prices are rigid.
C)Pe and real wages are rigid.
D)None of the above.

Question

Quizplus · Accepted Answer

The SP curve assumes that Pe as embodied in wage contracts is "fixed," meaning that nominal wages do not adjust immediately to changes in prices or the overall level of economic activity. This assumption is based on the idea that wage contracts are sticky and not easily changed in the short-run.

Each SP Curve Is Drawn Assuming