If wages are "sticky",a decline in the price level will
A) raise the real wage and lower the quantity demanded of labor.
B) lower the real wage and lower the quantity supplied of labor.
C) raise the real wage and lower the quantity supplied of labor.
D) a and b
E) none of the above

Question

Quizplus · Accepted Answer

When wages are "sticky," they do not adjust quickly to changes in the price level. A decline in the price level increases the purchasing power of wages (i.e., raises the real wage) because workers' nominal wages remain the same while the prices of goods and services they buy fall. This increase in real wages makes labor more expensive for firms, leading to a decrease in the quantity of labor demanded by employers.

If Wages Are "Sticky",a Decline in the Price Level Will