People had been expecting the price level to be 120 but it turns out to be 122.In response Robinson Tire Company increases the number of workers it employs.What could explain this?
A)both sticky price theory and sticky wage theory
B)sticky price theory but not sticky wage theory
C)sticky wage theory but not sticky price theory
D)neither sticky wage theory nor sticky price theory

Question

Quizplus · Accepted Answer

The sticky price theory suggests that prices do not adjust immediately to changes in economic conditions, leading firms to adjust output and employment. The sticky wage theory suggests that wages are slow to adjust, causing firms to hire more workers when prices rise unexpectedly. Both theories can explain why Robinson Tire Company increases employment when the price level is higher than expected.

People Had Been Expecting the Price Level to Be 120