Aggregate Supply - The Short Run Aggregate supply curve - changes in the nominal wages

4 important questions on Aggregate Supply - The Short Run Aggregate supply curve - changes in the nominal wages

Are nominal wages flexible? How about when enough time has passed?

Nominal wages are sticky and not flexible, however when enough time has passed the for the contracts and informal agreements to be renegotiated?

How do we describe a rise in nominal wages?

a rise in nominal wage is an increase in the employer paid compensation

How does the decline in the nominal wages, shift the short-run aggregate supply curve

  • The decline in the nominal wages,
  • reduces production cost,
  • aggregate supply increases
  • and shift the short-run aggregate supply curve to the right.

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How do we describe the knock off effect, affect the nominal wage

  • When the price of a commodity increases, the overall price of goods in an economy increased
  • many contracts included cost-of-living allowances that automatically raised the nominal wage when consumer prices increased

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