Which of the Following Is the Correct Expression for Short-Run

question 65

Multiple Choice

Which of the following is the correct expression for short-run aggregate supply in the new classical view?

• A)Y = Y + a(P - P^e)
• B)Y = Y + a(P - P^e)
• C)Y = Y + a(P + P^e)
• D)Y = Y + a(P + P^e)

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Definitions:

Income Effect

A person’s willingness to give up some income in exchange for more leisure time.

Substitution Effect

If the price of a resource, say labor, goes up, business firms tend to substitute capital or land for some of their now-expensive workers. Also, the substitution of more hours of work for leisure time as the wage rate rises.

Substitution Effect

The economic principle that as prices rise, consumers will replace costlier items with less expensive alternatives, holding the utility they receive constant.

Manufacturing Wage Rates

The amount of remuneration or earnings per unit of time by workers in the manufacturing sector.