The Short-Run Aggregate Supply Curve Is Upward Sloping Because the Nominal

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The Answer is The nominal wage refers to the amount of dollars (or any nominal currency) that are earned, whereas the real wage refers to the amount of goods and services that can be purchased using that nominal wage. It is the nominal wage divided by the overall price level in the economy. If nominal wage is sticky (that is, it does not adjust rapidly), then an increase in the overall price level implies that the real wage that firms have to pay to their workers goes down. If the real wage that firms have to pay their workers goes down, then firms have an incentive to produce additional output. Therefore, the short-run aggregate supply curve slopes upward (higher overall price implies higher output). This relationship will break down if the real wage is sticky because that would mean that nominal wage adjusts to a change in price (higher price will imply higher nominal wage) and that firms therefore will have no incentive to produce higher output.

The Short-Run Aggregate Supply Curve Is Upward Sloping Because the Nominal

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The Short-Run Aggregate Supply Curve Is Upward Sloping Because the Nominal

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