Efficiency wage theory provides a reason for uncontracted nominal wages to ________ when nominal aggregate demand falls,thus ________ a recession.
A)fall proportionately,leading to
B)fall proportionately,preventing
C)remain unchanged,leading to
D)remain unchanged,preventing

Question

Quizplus · Accepted Answer

Efficiency wage theory suggests that firms pay above-market wages to boost productivity and reduce turnover. As a result, wages remain unchanged even when demand falls, potentially leading to a recession due to reduced spending power.

Efficiency Wage Theory Provides a Reason for Uncontracted Nominal Wages