Understanding AS-AD Model

What are Sticky Wages?

• Wages that are set by government regulations
• Wages that fluctuate with stock market performance
• Sticky wages are wages that are resistant to change, particularly downward, even in adverse economic conditions.
• Wages that increase automatically with inflation

What is the difference between Nominal Wage and Real Wage?

• Nominal wage is always higher than real wage.
• Nominal wage is the actual pay received, while real wage accounts for inflation and reflects purchasing power.
• Real wage is the total amount paid before taxes.
• Nominal wage includes benefits and bonuses only.

What are the reasons for wages being sticky?

• Wages are sticky due to government subsidies.
• Wages are sticky because of inflation rates.
• Wages are sticky due to high demand for labor.
• Wages are sticky due to contracts, morale, legal constraints, and hiring costs.

What happens when the price level (P) increases?

• Real Wage Falls

• Firms Hire More Labor

• Output Increases

• All of the above

What causes the SRAS curve to shift?

• Changes in Total Factor Productivity

• Changes in Labor Supply

• Changes in Expected Price Level

• All of the above

What is the LRAS curve?

• It is vertical at the potential output level

• It represents the level of output the economy can sustainably produce

• It is determined by factors that determine the production function in the long-run

• All of the above

What is the crowding out effect?

• Government borrowing increases interest rates

• Consumer demand decreases due to higher taxes

• Both A and B

• None of the above

What is a key principle of demand-side economics?

• Aggregate Demand is Key

• Supply Creates Its Own Demand

• Focus on Long-Term Growth

• Reducing Barriers to Production

What does supply-side economics emphasize?

• Increasing aggregate demand

• Increasing aggregate supply

• Government intervention

• None of the above

What is the multiplier effect?

• Initial increase in spending leads to larger economic activity

• Government spending decreases overall demand

• Higher taxes reduce consumer spending

• None of the above