Sticky nominal wages can lead to:
A) involuntary unemployment.
C) a labor surplus.
D) falling real wages.
E) higher levels of TFP.

Question

Sticky nominal wages can lead to:
A) involuntary unemployment. 
C) a labor surplus. 
D) falling real wages. 
E) higher levels of TFP.

Quizplus · Accepted Answer

Sticky nominal wages refer to the situation where wages are resistant to change even when there is a mismatch between the supply and demand for labor. This can lead to involuntary unemployment, where workers are willing to work at the prevailing wage rate, but employers are not willing to hire them because the wage is too high. This happens because employers cannot lower wages in the short run, which creates a deadweight loss in the labor market.

Sticky Nominal Wages Can Lead To