As the money wage rate rises
A) the long-run aggregate supply curve shifts rightward.
B) the short-run aggregate supply curve shifts rightward.
C) both the long-run aggregate supply curve and the short-run aggregate supply curve shift leftward.
D) the short-run aggregate supply curve shifts leftward.

Question

Quizplus · Accepted Answer

An increase in the money wage rate makes production more expensive for firms, which decreases the quantity of goods and services that a firm is willing to supply at any given price level in the short run. This is represented by a leftward shift of the short-run aggregate supply curve. The long-run aggregate supply curve is not affected by changes in the money wage rate as it is assumed prices and wages are flexible and the economy is at full employment in the long run.

As the Money Wage Rate Rises