The key implication for macroeconomic instability is that eﬃciency wages
A) contribute to the downward inﬂexibility of wages.
B) help reduce the downward inﬂexibility of wages.
C) increase the velocity of money.
D) reduce the velocity of money.

Question

Quizplus · Accepted Answer

Efficiency wages contribute to the downward inflexibility of wages because employers pay above the equilibrium wage to boost worker productivity, making them less likely to reduce wages even when economic conditions worsen.

The Key Implication for Macroeconomic Instability Is That Eﬃciency Wages