Wage and price stickiness causes

Question

Quizplus · Accepted Answer

Wage and price stickiness refers to the tendency of wages and prices to resist changing in response to changes in aggregate demand. This means that in the short run, changes in aggregate demand will have a limited effect on real GDP as firms are unable to adjust prices and wages quickly enough to fully respond to shifts in demand. Therefore, changes in aggregate demand will have short-run effects on real GDP, but in the long run, as firms have more time to adjust their prices and wages, changes in aggregate demand may have different effects on real GDP. However, the question only asks about the short-run effects, so the best answer is D.

Wage and Price Stickiness Causes