AP Macroeconomics- Sticky Wages

There are 2 aggregate supply curves: one for the short-run and the other for the long-run. There are a couple explanations for this, but the most popular one in terms of the collegeboard is the idea of sticky wages. Learn it, know it, ask if you don't.

[@jammyjammerson284]

hour before my test and u explained it sooo welll thank you

[@econgurusutton1589]

Juan-
I don't have a video on that, but I'll give it a go. There are 2 ways to illustrate crowding out graphically, either with the loanable funds market or the money market. Either way, what is happening is that people are consuming bundle loads, and part of consumption requires people to take out loans. Well, as they borrow more and more, the interest rate will rise (they are demanding dollars). When the interest rate rises, interest sensitive consumption and investment slows, which pushes the AD curve back to the left. There you have "crowding out." Essentially, all of the borrowers have "crowded out" other borrowers who no longer want to borrow due to the higher interest rates. Hope this is helpful.

[@abdulrazakal-ahmadi7886]

Fantastic video. Extremely clear and informative, thanks!

[@econgurusutton1589]

Thank you!

[@glenn06]

Great video! Thanks!

[@Spacemonkeymojo]

Good video man. It'd be nice if you included the AD curves though.

[@kameronmfk6856]

Educational as well as entertaining!! well done.

[@guitarloverrohan]

Just one Q's please, can you use the video and also explain:
What happens to real and nominal wages when inflation rate goes up or down?
Thank you so much!

[@shockman899]

thanks bro

[@navidmullo-abdolov2742]

thanks, this video was productive for me and its help to me) in my study ) do more video and use easy explanation lake this ))

[@johnknight1816]

Thanks man
Very well explained

[@ArboxMusic]

Good explanation

[@iMoosey49]

Great video thank you sir!

[@JP-ij7rp]

Hey EconGuru, great video! can you explain crowding out?

[@bradleywilliams2610]

Thankyou lord

[@johnappleseed7465]

great video !

[@econgurusutton1589]

Thanks!!

[@karolinakiecka3475]

Does downward nominal wage rigidity increase unemployment? I have an exam on Monday on Macroeconomics and one of the questions will be on DNWR and how it affects the outcomes of an expansionary fiscal policy. PLEASE HELP

[@econgurusutton1589]

Hey Karolina. Think about your question a little differently. If nominal wages fall, what happens to unemployment? Well, if workers are cheaper in the short-run, firms would be expected to employ more of them. But, if wages remain relatively higher, firms are less likely to hire. These changes in nominal wages represent a shifter of your SRAS curve too. Hopefully that helps a bit. Good luck!

[@jeffreyopoku2639]

thanks a lot.appreaciate

[@alexp3428]

Isn't it taken as given that wages AND prices are sticky in this model? Isn't the rationale that it is expensive for firms to constantly reevaluate their prices and thus they only do so periodically (much like the example of wages being adjusted yearly)?

[@econgurusutton1589]

Alex,
Yes, and if you use the Mankiw book, he talks about misperceptions as a 3rd explanation for the upward slope of the SRAS curve. For class and AP Exam purposes, the easiest and most common--maybe only--explanation come AP time is the sticky wage one.
If you have a McConnell and Brue book, they have a really nice section on the 3 stage SRAS curve that talks about the distinction between price and wage adjustments, I believe. Either way, you sound like you've got a solid handle on it!

[@alexp3428]

Thank you for the quick response, much appreciated. Keep up the great content!

[@guitarloverrohan]

Fkn genius!!

[@jamespatrickmcquade]

What does the role does the expected price level play in this adjustment?

[@econgurusutton1589]

Hey James,
The adjustment of price level is another explanation for why the SRAS curve slopes upward. Mankiw in particular goes through 3 explanations. Prices are sticky much like wages. If we think of firms that are slow to adjust their prices when the price of their products is falling, they are going to lose business thereby having to reduce their output....since people won't buy their item. I like to stick with the sticky wage theory because it seems to make a little more intuitive sense. And, when it comes to the AP test, it is essential!

[@hoainguyen5040]

anyone please help me with this question
The imperfect information model of AS assumes:
Select any number of options. None of the options may be correct as well as all of them may be correct.
A. sticky prices and real wages.
B. flexible prices and nominal wages.
C. flexible prices and sticky real wages.
D. flexible prices and sticky nominal wages.
E. do not answer this question