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    Question

    Which of the following best describes the short-run

    Aggregate Supply (AS) curve in the presence of sticky wages?
    A Perfectly vertical Correct Answer Incorrect Answer
    B Perfectly horizontal Correct Answer Incorrect Answer
    C Upward sloping Correct Answer Incorrect Answer
    D Downward sloping Correct Answer Incorrect Answer

    Solution

    In the presence of sticky wages, the short-run Aggregate Supply (AS) curve is upward sloping because as prices increase, firms can hire more workers at the existing wage rate, leading to an increase in output. In the case where both wages and prices are sticky then AS is horizontal and when both are flexible AS is vertical.

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