Question

Nominal wages are "sticky" because?

A) in the short run these payments are slow to rise when there are labor shortages and slow to fall even when there is significant level of unemployment.
B) in the long run these payments remain fixed thereby increasing the profitability of the firms.
C) in the short run these payments are slow to fall when there are labor shortages and slow to rise even when there is significant level of unemployment.
D) in the long run all wages become adjusted for inflation.

Answer 1

Nominal wages are 'sticky' because in the short run, these payments are slow to fall even when there is a significant level of unemployment.

Step-by-step explanation:

The reason why nominal wages are 'sticky' is because in the short run, these payments are slow to fall even when there is a significant level of unemployment (option C). This means that wages do not adjust quickly to changes in labor market conditions.

For example, during an economic downturn when there is high unemployment, employers may be reluctant to lower wages, as this could create dissatisfaction and affect morale among workers. Similarly, during a labor shortage, employers may offer higher wages to attract workers, but the increase may not happen immediately.