suppose the price level falls. because of fixed nominal wage contracts, firms become less profitable and…

suppose the price level falls. because of fixed nominal wage contracts, firms become less profitable and they cut back on production. this is a demonstration of the ________. a. sticky - wage theory of the short - run aggregate - supply curve b. sticky - price theory of the short - run aggregate - supply curve c. misperceptions theory of the short - run aggregate - supply curve d. classical theory of the long - run aggregate - supply curve

suppose the price level falls. because of fixed nominal wage contracts, firms become less profitable and they cut back on production. this is a demonstration of the ________. a. sticky - wage theory of the short - run aggregate - supply curve b. sticky - price theory of the short - run aggregate - supply curve c. misperceptions theory of the short - run aggregate - supply curve d. classical theory of the long - run aggregate - supply curve

Answer

Brief Explanations:

The sticky - wage theory states that when the price level falls and nominal wages are fixed due to contracts, firms' profits decline and they reduce production. This is exactly what is described in the question. The sticky - price theory focuses on prices not adjusting quickly, the misperceptions theory is about firms misinterpreting price changes, and the classical theory pertains to the long - run with flexible prices and wages.

Answer:

A. sticky - wage theory of the short - run aggregate - supply curve