The reason for disequilibrium in the short run in the Keynesian model of nominal-wage rigidity is
A)employers and employees do not know about the actual relative prices.
B)the contracts according which wages are set for a specific period and can be negotiated only when the contract term ends.
C)unions which supports fixed wages during the contracts.
D)that prices and wages move together in the long run.

Question

Quizplus · Accepted Answer

Nominal-wage rigidity refers to the situation where wages are set for a fixed period of time and cannot be adjusted until the contract term ends. In the short run, prices may change, causing a temporary imbalance between supply and demand in the labor market. This leads to disequilibrium in the short run. A is incorrect because relative prices are still known, but wages are fixed. C is incorrect because not all industries have unions, and not all unions support fixed wages. D is incorrect because the Keynesian model assumes that prices and wages do not move together in the short run due to nominal-wage rigidity.

The Reason for Disequilibrium in the Short Run in the Keynesian