GDP Analyis: Graph of long run and short run aggregate supply and demand

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David · Accepted Answer

1 
 
In the short run, there are sticky nominal wages because workers and labor unions are 
unable to negotiate wage rates with the firms which will make changes in the price level. 
Therefore, short run aggregate supply curve is upward sloping as wage rates increase can be 
incorporated into price increase and overall supply increases in the economy. The rightward shift 
in the aggregate supply curve is possible in short run because of sticky wages but rise in price 
level. As shown in the diagram above,

GDP Analyis: Graph of long run and short run aggregate supply and demand

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