Studies have shown that
A)firms often cut nominal wages during recessions and allow inflation to gradually increase real wages.
B)firms are reluctant to cut nominal wages during recessions but instead increase workers' nominal wages and allow inflation to gradually increase real wages.
C)firms are reluctant to cut nominal wages during recessions but instead freeze workers' nominal wages and allow inflation to gradually reduce real wages.
D)firms often freeze workers' nominal wages during a recession and keep the wages frozen well after the recession has ended.

Question

Quizplus · Accepted Answer

Studies have shown that firms are reluctant to cut nominal wages during recessions but instead freeze workers' nominal wages and allow inflation to gradually reduce real wages. This is known as the "sticky wage" phenomenon, as firms prefer to avoid the negative impact of cutting workers' wages and instead let inflation erode the real value of wages over time.

Studies Have Shown That