One explanation for why wages adjust slowly and with a substantial lag to changes in aggregate demand is
A) the presence of formal multiyear labor contracts in unionized industries.
B) the widespread practice of profit-sharing plans as part of most employee compensation packages.
C) that such changes have little or no impact on rates of unemployment because the short-run aggregate supply curve is vertical.
D) that labor markets clear readily without changes in wage rates.
E) a belief by most workers that real wages are unaffected by changes in the price level.

Question

Quizplus · Accepted Answer

Formal multiyear labor contracts in unionized industries can make it difficult to adjust wages in response to changes in aggregate demand, as wages are typically fixed for the duration of the contract. This can result in wages adjusting slowly and with a substantial lag.

One Explanation for Why Wages Adjust Slowly and with a Substantial