Homework Answers
Answer to the question -
The AS curve slopes upwards because, a. wages are sticky.
Explanation to the answer -
In the short run the aggregate supply curve is upward sloping. Economists explain this situation by offering some theories. Such as -
• Sticky-wage theory
• Sticky-price theory
• Misperception theory
According to the question, here the relevant theory is “ Sticky-wage theory".
As per this theory, in the short run, wages ( i.e. the payment of workers ) don't respond immediately or tends to have a slow response or takes time to adjust with the changes in the price level or performance.
As nominal wages are generally based on expected prices and fixed by the management by a prior contract . So, when the economy/price level changes, the wages can't be adjusted immediately. i.e. wages are sticky.
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of money falls
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