Based on the classical view of the labor market, explain the characteristics of the aggregate supply curve.

Question

Quizplus · Accepted Answer

The Answer is Because the labor market adjusts so quickly to changes in demand and supply, the labor market also adjusts quickly to changes in the price level. If there is an increase in the price level, the wage (nominal) will quickly adjust to this change in P. In this case, wages would adjust completely to any changes in the price level. Because wages adjust to changes in the price level, the aggregate supply curve, based on the classical view, would be vertical. Specifically, changes in the price level will have no effect on the level of output.

Based on the Classical View of the Labor Market, Explain