At December 31, 2017, the available-for-sale debt portfolio for Carla, Inc. is as follows. Security Cost Fair Value Unrealized G
ain (Loss) A $35,875 $30,750 $(5,125 ) B 25,625 28,700 3,075 C 47,150 52,275 5,125 Total $108,650 $111,725 3,075 Previous fair value adjustment balance—Dr. 820 Fair value adjustment—Dr. $2,255 On January 20, 2018, Carla, Inc. sold security A for $30,955. The sale proceeds are net of brokerage fees. Prepare the adjusting entry at December 31, 2017, to report the portfolio at fair value. Show the balance sheet presentation of the investment-related accounts at December 31, 2017. Prepare the journal entry for the 2018 sale of security A.
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Answer: A - nominal wages are slow to adjust to changing economic conditions
Explanation:
In the short run, the costs of many of the factors used in the production process are fixed. For example labours wage is fixed for a number of years because of labour contracts. Also the raw materials used in the production process have long term agreements that fix their prices.
As a result of factors of production been fixed in the short run, when general price level rises and the cost of production remains constant, profit also rises.
Firms take advantage of this rise in price and increase production and the quantity of aggregate supply increases. This is why the short run aggregate supply curve is upward sloping.
