37. (Problem 2) Your study partner is confused by the upward-sloping short-run a

Question

37. (Problem 2) Your study partner is confused by the upward-sloping short-run aggregate supply curve and the vertical long-run aggregate supply curve. How would you explain this? Choose the correct statement. A. The short-run aggregate supply curve is upward-sloping because in the short run wages are flexible. The long-run aggregate supply curve is vertical because in the long run wages are sticky. B. The short-run aggregate supply curve is upward-sloping because in the short run wages are sticky. The long-run aggregate supply curve is vertical because in the long run wages are flexible. C. The short-run aggregate supply curve is upward-sloping because in the short run wages are sticky. The long-run aggregate supply curve is vertical because in the long run wages are also sticky. 37. (Problem 2) Your study partner is confused by the upward-sloping short-run aggregate supply curve and the vertical long-run aggregate supply curve. How would you explain this? Choose the correct statement. A. The short-run aggregate supply curve is upward-sloping because in the short run wages are flexible. The long-run aggregate supply curve is vertical because in the long run wages are sticky. B. The short-run aggregate supply curve is upward-sloping because in the short run wages are sticky. The long-run aggregate supply curve is vertical because in the long run wages are flexible. C. The short-run aggregate supply curve is upward-sloping because in the short run wages are sticky. The long-run aggregate supply curve is vertical because in the long run wages are also sticky.

Explanation / Answer

option 'B' is correct which is The short-run aggregate supply curve is upward-sloping because in the short run wages are sticky. The long-run aggregate supply curve is vertical because in the long run wages are flexible.

explanation

In short run wages are set by sticky because there are various friction such as contract

.In short run wages are fixed by contract which is decide by labour union and employer and labour can not breach the contract so the wages are stickey

secondly there is also cost of negotiating wage such as printing new contract etc ,so it makes wages sticky in short run and due to which it is upward sloping .

long run is a period when input prices is completely adjustable to changes in economic conditions

In long run labours can change contract and employer can also do that so the wages are flexible andand aggregate supply curve is vertical.

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