Question

Which of the following statements about the sticky wage theory of the short-run aggregate supply curve (SRAS) is (are) correct?
(x) Wages are “stuck” because contracts typically require that input prices must change at the same rate as output prices in order to keep firms from increasing profits as they increase production.
(y) Wages and other input prices are “sticky” because contracts fix some input prices and firms are unable to change the input prices they face as output prices are changing.
(z) The sticky wage theory of the short-run aggregate supply curve says that when the price level rises
more than expected, real wages fall because nominal wages are increasing at a slower rate than the price level.
A. (x), (y) and (z) B. (x) and (y) only
C. (x) and (z) only D. (y) and (z) only
E. (x) only

Which of the following statements about the sticky price theory of the short-run aggregate supply curve (SRAS) is (are) correct?
(x) Because not all prices adjust instantly to changing conditions, an unexpected fall in the price level leaves some firms with higher-than-desired prices, and these higher-than-desired prices depress sales and induce firms to reduce the quantity of goods and services they produce.
(y) The sticky price theory of short-run aggregate supply says that when the price level falls unexpectedly, some firms will have higher than desired prices which depresses their sales.
(z) An increase in aggregate demand will cause an increase in price in the output market. Sticky input prices will force firms to take losses since they can’t increase the prices of inputs that are used in the production of the output.
A. (x), (y) and (z) B. (x) and (y) only
C. (x) and (z) only D. (y) and (z) only
E. (x) only

4. Which of the following statements about the misperceptions theory of the short-run aggregate supply curve (SRAS) is (are) correct?
(x) The theory is used to explain the upward sloping SRAS curve since an increase in prices, ceteris paribus, will increase the output supplied in the short run.
(y) The theory says that if the price level increases more than people expect, firms believe that the relative price of what they produce has increased, so they increase production.
(z) Suppose the price level falls but suppliers only notice that the price of their particular product has fallen. Thinking there has been a fall in the relative price of their product, they cut back on production of their product.
A. (x), (y) and (z) B. (x) and (y) only
C. (x) and (z) only D. (y) and (z) only
E. (z) only

Answer 1

Q(1)

When the price level rises in the economy, then the wages will be stuck at contract levels, so that real wages will fall, and thus making labor cheaper. so basically The sticky wage theory states that the pay of employees always tends a slow response with changes in the performance of a company or the economy.

Answer - { A } [ (X) (Y) (z) ]

Q(3)

So When the price of a product is greater than the expected price of in the market then, then, in that case, the firm is underpaying the worker thus it means they have a lower relative cost and can produce a greater level of output by using the same set of resources.

Answer - { A } [ (X) (Y) and (Z) ]

Q(4)

misperceptions theory of the short-run aggregate supply curve states that, a firm thinks if there is an increase in the overall price level of their goods and services in the market then it is just an increase in the price of their good which is either due to an increase in demand or due to a decrease in supply in the market. thus it seemed that as the price of the good went up they will sell more in the market.

Answer - { B }. [ (X) (Y) ]