An economy may not quickly and automatically eliminate a recessionary output gap because wages
A)have a tendency to rise too quickly.
B)have a tendency to be sticky downward.
C)never change in response to changes in the demand for labour.
D)are flexible but prices have a tendency to be sticky downward.
E)have a tendency to fall too quickly.

Question

Quizplus · Accepted Answer

Wages have a tendency to be sticky downward, meaning they do not adjust quickly to changes in the economy. This can lead to firms reducing employment rather than decreasing wages, resulting in a persistent output gap.

An Economy May Not Quickly and Automatically Eliminate a Recessionary