The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if
A)the price level is higher than expected making production more profitable.
B)the price level is higher than expected making production less profitable.
C)the price level is lower than expected making production more profitable
D)the price level is higher than expected making production less profitable

Question

Quizplus · Accepted Answer

According to the sticky-wage theory, in the short run, firms respond to unexpected changes in the price level. If the price level is higher than expected, firms' production becomes more profitable as wages have not yet adjusted to the new level, leading to an increase in the quantity of output supplied.

The Sticky-Wage Theory of the Short-Run Aggregate Supply Curve Says