The argument that the nominal wage is fixed because of long-term labour contracts
A)closely fits the real world.
B)means that productivity shocks are an important cause of business cycles.
C)explains sticky price models.
D)explains equilibrium business cycle models.
E)does not take into account why such a contract would be written.

Question

Quizplus · Accepted Answer

Long-term labor contracts fixing nominal wages do not explain why such contracts are written, which is a limitation of this argument.

The Argument That the Nominal Wage Is Fixed Because of Long-Term