Suppose that in an attempt to protect workers Congress impos

Suppose that in an attempt to protect workers, Congress imposes legislation that makes it more difficult and time consuming to reduce workers’ nominal wages. How would SRAS and LRAS be affected by this change?

A) the SRAS curve would become steeper and the LRAS curve would remain unchanged

B) neither curve would be affected

C) The SRAS curve would become flatter and the LRAS curve would remain unchanged

D) The SRAS curve would shift to the right and the LRAS curve would shift to the right

Solution

With the change in legislation when it becomes difficult for employers and prdouction units to reduce workers’ nominal wages, cost would increase to which short run aggregate supply will be shortened to which SRAS curve will become steeper as supply will be shortened and the LRAS curve would remain unchanged as in long run various policies may get adopted to neutralize the effect.