Consider the AD/AS macro model.The wage-adjustment process is asymmetrical because
A)factor prices fluctuate more frequently than goods prices.
B)goods prices rise more quickly than factor prices.
C)employers delay wage increases in a boom but lay off workers quickly during a slump.
D)taxes rise quickly in a boom but do not fall during a slump.
E)wages rise quickly in a boom but fall slowly during a slump.

Question

Quizplus · Accepted Answer

The wage-adjustment process is asymmetrical because wages tend to rise quickly during a boom (when labor demand is high and employers have to compete for workers) but fall slowly during a slump (when labor supply is high and workers have to compete for jobs). This is because of downward wage rigidity, which refers to the reluctance of workers to accept wage reductions even if their skills are not in high demand. In contrast, goods prices tend to adjust more quickly to changes in supply and demand. Therefore, choice E, which states that wages rise quickly in a boom but fall slowly during a slump, is the best answer.

Consider the AD/AS Macro Model