With sticky prices in the stylized DSGE model, a monetary expansion:
i. Increases real wages
ii. Increases nominal wages
iii. Reduces output
A) i
B) ii
C) i and ii
D) i and iii
E) iii

Question

Quizplus · Accepted Answer

A monetary expansion in the context of sticky prices typically leads to an increase in both real and nominal wages. Real wages increase because prices do not adjust immediately to the monetary expansion, allowing the real purchasing power of wages to rise temporarily. Nominal wages can increase due to the higher demand for labor driven by the expansionary monetary policy. This scenario does not reduce output; instead, it is likely to increase output in the short run due to higher spending and investment.

With Sticky Prices in the Stylized DSGE Model, a Monetary