The Keynesian sticky-wage theory states that in the short run:
A)wages do not adjust to changes in prices; therefore, real wages change and suppliers adjust their output levels
B)wages adjust to changes in prices; therefore, real wages are unchanged and suppliers do not adjust their output levels
C)wages adjust instantaneously to changes in prices
D)none of the above is an implication of the Keynesian sticky-wage theory

Question

Quizplus · Accepted Answer

The Keynesian sticky-wage theory suggests that in the short run, wages are "sticky" and do not adjust to changes in prices. This means that when there is an increase in prices, real wages decrease, and suppliers must adjust their output levels to meet the new demand. Similarly, when there is a decrease in prices, real wages increase, and suppliers must also adjust their output levels accordingly. This is because the higher real wages encourage workers to work more, which leads to an increase in demand for goods and services. Thus, option A is the correct choice.

The Keynesian Sticky-Wage Theory States That in the Short Run