Question

The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, a. production is less profitable and employment rises. b. production is less profitable and employment falls. c. production is more profitable and employment falls. d. production is more profitable and employment rises.

Answer 1

The correct answer is letter "D": production is more profitable and employment rises.

Step-by-step explanation:

The sticky-wage theory states that worker's earnings respond slowly to changes in the performance of the company or the economy. The theory states that a firm's revenue could be higher but not labor cost. As production is more profitable since the price level has raised more than expected, firms increase output and employment.