According to the sticky-wage theory of the short-run aggregate supply curve,if workers and firms expected prices to rise by 4 percent,but instead they rise by 2 percent,then
A) employment and production rise.
B) employment rises and production falls.
C) employment falls and production rises.
D) employment and production fall.

Question

Quizplus · Accepted Answer

According to the sticky-wage theory, if actual prices rise less than expected, real wages are higher than anticipated, leading firms to hire fewer workers and reduce production, causing both employment and production to fall.

According to the Sticky-Wage Theory of the Short-Run Aggregate Supply