Apr 21 2012

Sticky-wages

Published by at 8:24 pm under

The short run aggregate supply curve is sometimes referred to as the “inflexible wage and price model”, because workers’ wage demands take time to adjust to changes in the overall price level; therefore, in the short run an economy may produce well below or beyond its full employment level of output. Explains why short run aggregate supply is horizontal below full employment and nearly vertical beyond full employment.

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