According to the sticky wage theory, which of the following is consistent with a more-than-expected increase in the price level?
A)Real wages rise, so firms will hire more workers.
B)Real wages rise, so firms will hire fewer workers.
C)Real wages fall, so firms will hire more workers.
D)Real wages fall, so firms will hire fewer workers.

Question

Quizplus · Accepted Answer

According to the sticky wage theory, nominal wages are slow to adjust to changes in the price level. If the price level increases more than expected, real wages (wages adjusted for inflation) fall, making labor cheaper for firms. As a result, firms are likely to hire more workers.

According to the Sticky Wage Theory, Which of the Following