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The AS ( Aggregate Supply) curve slopes upwards because? a- Wages are sticky b- as the...

The AS ( Aggregate Supply) curve slopes upwards because?

a- Wages are sticky

b- as the price level rises the fed raises the interest rate

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Answer #1

Wages are sticky

Because of the fact that nominal wages are fixed in advance due to contractual terms of labour, whenever there is an increase in the general price level nominal wages remain unchanged and this causes real wage rate to decline. Firms hire more labour and produce more when real wages are produced and they supply more units. this implies that the aggregate quantity of goods and services supply increases when there is an increase in the price level. Due to this reason aggregate supply curve slopes upward

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