All points on the SP curve (but not on the LP line)share the characteristic that the economy is not in the long-run equilibrium because
A)price level is constantly increasing faster than nominal wage rate.
B)wage contracts failed to anticipate inflation correctly.
C)wage contracts failed to specify in advance the wage increases necessary to keep up with inflation.
D)All of the above.

Question

Quizplus · Accepted Answer

All of the above statements describe why the economy is not in long-run equilibrium on the SP curve. Inflation is occurring at a faster rate than nominal wage increases, indicating that wage contracts did not anticipate or specify necessary wage increases to keep up with inflation. This leads to a situation where prices are constantly increasing faster than nominal wages, and the economy is not in a state of long-run equilibrium.

All Points on the SP Curve (But Not on the LP