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MACROECONOMICS Multiple choice q. PLEASE EXPLAIN YOUR CHOICE What is true of a movement up the...

MACROECONOMICS Multiple choice q. PLEASE EXPLAIN YOUR CHOICE

What is true of a movement up the aggregate supply curve?

A) The nominal wage remains constant but the real wage declines.

B) The real wage remains constant but the nominal wage declines.

C) The real wage remains constant but the nominal wage increases

D) Both the nominal and real wages decline.

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Answer #1

Option A.

  • The movement up the aggregate supply curve is because the nominal wage remains constant but the real wage declines.
  • The aggregate supply curve slopes upwards in the short run.
  • The slope of the aggregate supply curve shows relationship between price level and the quantity of GDP.
  • In the short run the nominal wages are fixed.
  • And any increase in price indicates higher profits.
  • The upward slope of aggregate supply curve also indicates that the quantity of real GDP increases as price level increases.
  • But any rise in the price level will cause the real wage rates to fall.
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