The aggregate supply schedule is steeper where the money wage is more variable than where the money wage is fixed because the rise in the money wage in the
A)fixed-wage case dampens the effect on employment and output from an increase in the price level.
B)variable-wage case dampens the effect on employment and output from an increase in the price level.
C)variable-wage case heightens the effect on employment and output from an increase in the price level.
D)all of the above

Question

Quizplus · Accepted Answer

The steeper aggregate supply schedule in the variable-wage case is due to the fact that a rise in the price level will not be fully passed on to workers in the form of higher wages, leading to lower labor costs and increased employment and output. In the fixed-wage case, the rise in the money wage dampens this effect, leading to a less steep aggregate supply schedule. Therefore, B is the correct choice.

The Aggregate Supply Schedule Is Steeper Where the Money Wage