According to the Sticky-Wage Theory, Which Statement Is Consistent with an Unexpected

question 196

Multiple Choice

According to the sticky-wage theory, which statement is consistent with an unexpected increase in the price level?

• A) The real wage rises, and employment rises.
• B) The real wage rises, and employment falls.
• C) The real wage falls, and employment rises.
• D) The real wage falls, and employment falls.

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Definitions:

Interest Rate

The cost of borrowing money or the return on savings, typically expressed as a percentage of the principal amount per year.

Discounting

The process of determining the present value of future cash flows by applying a discount rate to reflect time value of money and risk.

Equilibrium Interest Rate

The interest rate at which the quantity of loanable funds demanded equals the quantity of loanable funds supplied.

Domestic Output

The total value of all goods and services produced within a country's boundaries over a specific time period.