According to the sticky wage theory, which of the following is consistent with an unexpected increase in the price level?
A)The real wage rises, and employment rises.
B)The real wage rises, and employment falls.
C)The real wage falls, and employment rises.
D)The real wage falls, and employment falls.

Question

Quizplus · Accepted Answer

According to the sticky wage theory, wages are slow to adjust to changes in the price level. An unexpected increase in the price level reduces the real wage, making labor cheaper for firms, which leads to an increase in employment.

According to the Sticky Wage Theory, Which of the Following