Wage contracts force businesses to adjust wages rather than employment in response to an unexpected change in aggregate demand.

Name: Wage contracts force businesses to adjust wages rather than employment in response to an unexpected change in aggregate demand.
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Question

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Wage contracts typically fix wages for a certain period, making it difficult for businesses to adjust wages quickly in response to changes in aggregate demand. Instead, businesses may adjust employment levels.

Wage Contracts Force Businesses to Adjust Wages Rather Than Employment