Because prices are sticky, positive demand shock will lead to:
A) No change in unemployment
B) An increase in unemployment
C) A decrease in unemployment
D) An unpredictable change in unemployment

Question

Quizplus · Accepted Answer

Positive demand shocks will increase output and sales, which will eventually lead to an increase in production and employment. In the short run, prices may not adjust immediately, leading to an increase in sales revenue and lower costs, thereby resulting in increased profitability for firms. As a result, firms will hire more workers leading to a decrease in unemployment.

Because Prices Are Sticky, Positive Demand Shock Will Lead To