Definition
- Wage rates
- Wage rates are the price of labour, an input almost every firm buys, so a rise across the economy shifts SRAS left and a fall shifts it right.
Example
Can you think of an example of wage rates?
Pay settlements across the economy run ahead of prices for a year. Firms' wage bills rise at every price level, so they supply less real GDP and SRAS shifts left.
Test yourself
Can you name the five things that shift short-run aggregate supply?