Suppose nominal wages are sticky in the downward direction.If no government intervention occurs, how may unemployment be affected in the long run?
A) Unemployment may persist for long periods of time.
B) Shortages of labour may persist for long periods of time.
C) Increases in real wages will occur too quickly to affect unemployment.
D) Nominal wage increases will help reduce unemployment.

Question

Suppose nominal wages are sticky in the downward direction.If no government intervention occurs, how may unemployment be affected in the long run?  
A) Unemployment may persist for long periods of time. 
B) Shortages of labour may persist for long periods of time. 
C) Increases in real wages will occur too quickly to affect unemployment. 
D) Nominal wage increases will help reduce unemployment.

Quizplus · Accepted Answer

With sticky nominal wages, firms reluctant to lower wages, resulting in higher labor costs than necessary, making it difficult for them to employ more people or eliminate existing jobs. As a result, unemployment can persist for extended periods of time.

Suppose Nominal Wages Are Sticky in the Downward Direction