Question

If there are sticky wages, and the price level is greater than what was expected, then....

A. the quantity of aggregate goods and services supplied falls, as shown by a movement to the left along the short-run aggregate supply curve.

B. the quantity of aggregate goods and services supplied rises, as shown by a movement to the right along the short-run aggregate supply curve.

C. the quantity of aggregate goods and services supplied falls, which is shown by a shift of the short-run aggregate supply curve to the left.

D. the quantity of aggregate goods and services supplied rises, as shown by a shift of the short-run aggregate supply curve to the right.

Answer 1

Answer

Option B

B. the quantity of aggregate goods and services supplied rises, as shown by a movement to the right along the short-run aggregate supply curve.

The change in price level is a moment along the curve as the price level is higher so the aggregate quantity supplied increases because wages are sticky so the input costs do not change and the firms can increase output.