When _____ wages are sticky, an increase in the price level leads to _____ in the profit earned by businesses.
A) real; a decrease
B) nominal; a decrease
C) real; an increase
D) nominal; an increase

Question

Quizplus · Accepted Answer

When nominal wages are sticky, they do not adjust immediately to changes in the price level. Therefore, if the price level increases, businesses can sell their products at higher prices while their wage costs remain the same, leading to an increase in profits.

When _____ Wages Are Sticky, an Increase in the Price