Skip to content
We use only essential cookies to keep you signed in and remember your preferences. See our Cookie Policy.
TestStop
MocksPracticeResourcesIndiaBlogPricing
Sign in
Questions › DSE › DSE 2017 › Q43
2 marks, −0.666666666666667Macroeconomics › AD-AS model › Keynesian and short-run aggregate supplyModerateabout 3 min

DSE 2017 Question 43: AD-AS model

For the labour market with D(w)=1−wD(w)=1-wD(w)=1−w, S(w)=wS(w)=wS(w)=w (w=W/Pw=W/Pw=W/P), suppose the nominal wage WWW minimizes ∣D(W/P)−S(W/P)∣|D(W/P)-S(W/P)|∣D(W/P)−S(W/P)∣ subject to W≥W0W\ge W_0W≥W0​, where W0>0W_0>0W0​>0 is a minimum nominal wage. Given the price level PPP, the nominal wage WWW is

Tap an option to check your answer.

Answer and worked solution

Checking your account…

Plain-text version

For the labour market with D(w)=1-w, S(w)=w (w=W/P), suppose the nominal wage W minimizes |D(W/P)-S(W/P)| subject to W≥ W₀, where W₀>0 is a minimum nominal wage. Given the price level P, the nominal wage W is (A) max {W₀, P/2} (B) min {W₀, P/2} (C) 1/2 (D) W₀/2

Also written as: For the labour market with D(w)=1-w, S(w)=w (w=W/P), suppose the nominal wage W minimizes |D(W/P)-S(W/P)| subject to W>= W_0, where W_0>0 is a minimum nominal wage. Given the price level P, the nominal wage W is

AD-AS model has come up 59 times in 7 exams since 2004.

What this question tests

This question is on Keynesian and short-run aggregate supply, part of AD-AS model in Macroeconomics.

Why output responds to demand in the short run: sticky wages and prices, wage floors and upward-sloping supply.

TestStop has 24 past-paper questions on this subtopic; the nearest in year are below.

  • GATE 2023 · Q54Which of the following models explain(s) the upward-sloping aggregate supply curve in the short-run?
Practise AD-AS modelMore on Keynesian and short-run aggregate supply

Similar questions from other papers

  • CUET-PG 2026 · Q9In the short run, if planned purchase exceeds production
  • CUET-PG 2025 · Q10In the case of classical economics, an increase in the nominal money stock causes
  • IIT JAM 2025 · Q36Which of the following is/are CORRECT according to the classical macroeconomic school? (A) Long run aggregate supply curve is vertical. (B) If long run aggregate supply…
  • GATE 2024 · Q29In the sticky-price model of aggregate supply, if none of the firms in the market have flexible prices, then the short-run aggregate supply curve will be
  • UGC-NET 2024 · Q76Effective Demand Problem may arise even in a competitive market economy under Rational Expectation, if there is:

Question from the DSE 2017 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.