In a model with sticky nominal wages an increase in the money supply will:

Question

Quizplus · Accepted Answer

In a model with sticky nominal wages, an increase in the money supply leads to a decrease in the real wage, but it does not necessarily decrease real output or decrease the labor input. This is because sticky nominal wages mean that it takes time for nominal wages to adjust to changes in prices, so in the short-run, an increase in the money supply leads to a decrease in the real wage which can increase employment and output. Therefore, option A is the best choice out of the given options.

In a Model with Sticky Nominal Wages an Increase in the Money