In the short run in a model with sticky prices:

Question

Quizplus · Accepted Answer

In the short run with sticky prices, the labor input tends to increase with economic expansion, making it procyclical. The average product of labor often decreases as more workers are hired under diminishing returns, making it countercyclical. The real wage rate typically increases in good times due to higher demand for labor, making it procyclical as well. Therefore, all of the statements are correct.

In the Short Run in a Model with Sticky Prices