Chapter 18, Problem 6MCQ

To determine

The reason for upward slope of short-run aggregate supply curve.

Answer to Problem 6MCQ

From the available options, the correct option is sticky wages.

Explanation of Solution

Due to sticky wages, the short run aggregate supply curve would be upward sloping because nominal wages are not adjusted properly according to the change in economic condition. Therefore, there would be no substitution, interest rate, and wealth effect in the short-run for aggregate supply curve because Market prices or salaries are referred to as sticky prices if they don't shift quickly in response to economic changes. And an economy might not function at full employment when faced with issues like sticky wages and pricing.

And the prices are flexible in long-run, not in short-run.

Therefore, the correct option is c (sticky wages).

Economics Concept Introduction

Introduction: An aggregate supply curve represents the relationship between the price level (aggregated) and the quantity supplied (aggregated) in the economy where aggregate supply is the total quantity which is produced and sell by firms at different prices in the market.