Which of the following is correct?
A)The short-run,but not the long-run,aggregate supply curve is consistent with the idea that nominal variables do not affect real variables.
B)The long-run,but not the short-run,aggregate supply curve is consistent with the idea that nominal variables do not affect real variables.
C)The long-run and short-run supply curves are both consistent with the idea that nominal variables affect real variables.
D)Neither the long-run nor the short-run aggregate supply curve is consistent with the idea that nominal variables affect real variables.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve is consistent with the idea that nominal variables do not affect real variables because in the long run, all factors of production are variable and there are no fixed costs. Therefore, changes in nominal variables (such as changes in the money supply) only affect the price level and not the quantity of output. In contrast, the short-run aggregate supply curve can be upward sloping due to sticky wages and prices, which means that changes in nominal variables can temporarily affect real output in the short run.

Which of the Following Is Correct