If nominal wages are sticky in the downward direction,
A)unemployment may persist for long periods of time
B)shortages of labor may persist for long periods of time
C)increases in real wages will happen too quickly to affect unemployment
D)nominal wage increases will reduce the price level
E)decreases in nominal wages will increase the inflation rate

Question

Quizplus · Accepted Answer

Nominal wage stickiness means that wages do not adjust downward quickly in response to changes in demand for labor or economic conditions. This can lead to unemployment persisting for long periods of time as firms are unwilling to hire at higher wages and workers are unwilling to accept lower wages.

If Nominal Wages Are Sticky in the Downward Direction