People had been expecting the price level to be 220 but it turns out to be 223. In response Green Leaf Paper Company increases the number of workers it employs. What could explain this?
A)both sticky price theory and sticky wage theory
B)sticky price theory but not sticky wage theory
C)sticky wage theory but not sticky price theory
D)neither sticky wage theory nor sticky price theory

Question

Quizplus · Accepted Answer

Sticky price theory suggests that prices are slow to adjust to changes in supply and demand. In this case, the price level was expected to be 220, but it turned out to be 223. This means that the price level was sticky and did not adjust immediately to the new information. Sticky wage theory suggests that wages are slow to adjust to changes in supply and demand. In this case, the wages of the workers at Green Leaf Paper Company were likely sticky and did not adjust immediately to the new information. As a result, Green Leaf Paper Company increased the number of workers it employs in order to meet the increased demand for its products.

People Had Been Expecting the Price Level to Be 220