Comparing the aggregate supply curve and the short-run Phillips curve, we see that they
A) each describe different parts of the economy.
B) both exist because the real wage rate is fixed in the short run.
C) both exist since money wages are flexible.
D) both exist because the money wage rate is fixed in the short run.
E) describe the same phenomena but contradict each other.

Question

Quizplus · Accepted Answer

The aggregate supply curve and the short-run Phillips curve both exist because the money wage rate is fixed in the short run. This fixed wage rate in the short run affects the supply of goods and services in the economy as well as the relationship between inflation and unemployment, which is what the short-run Phillips curve illustrates.

Comparing the Aggregate Supply Curve and the Short-Run Phillips Curve