Suppose the Price Level Falls but Because of Fixed Nominal

question 29

Multiple Choice

Suppose the price level falls but because of fixed nominal wage contracts, the real wage rises and firms cut back on production. This is a demonstration of the

• A) sticky-wage theory of the short-run aggregate supply curve.
• B) classical dichotomy theory of the short-run aggregate supply curve.
• C) misperceptions theory of the short-run aggregate supply curve.
• D) sticky-price theory of the short-run aggregate supply curve.

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