Review the Sticky-Wage Theory of the Short-Run Aggregate-Supply Curve

question 56

Essay

Review the sticky-wage theory of the short-run aggregate-supply curve.
a) Use the sticky-wage theory to explain why the short-run aggregate-supply curve is upward sloping.
b) Based on the same theory, construct an argument to explain why the aggregate-demand curve is downward sloping. Though simple and appealing, why may this theory not completely explain the short-run aggregate-demand curve?

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