Nominal wages react slowly to changes in output for the following reasons,except one.Which is the exception?
A) The nominal wage may be fixed and independent of output because of labor contracts that last up to three years.
B) The real wage remains constant despite changes in output.
C) Firms with a reputation for paying stable nominal wages will find it easier to attract new workers.
D) Changing the nominal wage can be costly to firms.
E) Nominal wages may be set by slow-moving corporate bureaucracies.

Question

Quizplus · Accepted Answer

Nominal wages react slowly to changes in output because of labor contracts with fixed wages, the costs associated with changing wages, the influence of reputational effects, and bureaucratic decision-making. However, the real wage adjusts more quickly as it reflects the purchasing power of nominal wages and changes in prices. So, the exception to the reason is B, where the real wage remains constant despite changes in output, which is not true as the real wage changes along with prices.

Nominal Wages React Slowly to Changes in Output for the Following