If Nominal Wages Are Sticky in the Downward Direction

question 172

Multiple Choice

If nominal wages are sticky in the downward direction,

• A)unemployment may persist for long periods of time
• B)shortages of labor may persist for long periods of time
• C)increases in real wages will happen too quickly to affect unemployment
• D)nominal wage increases will reduce the price level
• E)decreases in nominal wages will increase the inflation rate

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Definitions:

Profit-maximizing Number

The output level at which a firm achieves the highest possible profit, where marginal cost equals marginal revenue.

Rent Seeker

An individual or entity that seeks to increase their share of existing wealth without creating new wealth, often through manipulation of the economic environment.

Public Choice Theory

A framework that analyzes how public decisions are made, focusing on the behavior and interests of voters, politicians, and bureaucrats.

Excess Burden

The cost to society created by market inefficiency, which occurs when supply and demand are out of equilibrium, often due to taxes or monopolies.