Some textbooks discuss the phenomenon of “sticky wages.”  This phrase has come to mean that workers are quick to recognize that prices they pay for stuff are increasing and will move quickly to try and get a raise in nominal

Some textbooks discuss the phenomenon of “sticky wages.”  This phrase
has come to mean that workers are quick to recognize that prices they pay for stuff are increasing and will move quickly to try and get a raise in nominal wages in times of higher than average inflation, but are unwilling to have nominal wages fall or adjust to rates of inflation that are lower than expected.
a)  If the economy is in a short run equilibrium associated with a period of expansion, explain why, based on the statement above, the short run might be a very short period of time (a diagram is not required but will probably make it easier to explain) (2 points)
b)  If an economy is in a short run equilibrium associated with a period of recession, explain why, based on the statement above, the long run could take a very long time to occur. (same caveat about a diagram) (2 points)
 
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The post Some textbooks discuss the phenomenon of “sticky wages.”  This phrase has come to mean that workers are quick to recognize that prices they pay for stuff are increasing and will move quickly to try and get a raise in nominal appeared first on Superb Professors.

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