Business Cycle Theory The Sticky- pay Model In this model, economists peg out the sluggish adjustment of nominal wages agency to exempt why it is that the short-run meat ply tailor is upwardly sloping. For sticky nominal wages, an increase in the premature take lowers the real wage therefore making bar cheaper for firms. Cheaper promote means that firms will hire much labor, and the increase labor will in turn produce more output. The clock period where the nominal wage cannot adjust to the changes in price level and output signifies the positive sloping aggregate supply curve.
The nominal wage is set by the workers and the firms ground on the target real wage, which whitethorn or may not be the labor supply & occupy equilibrium, and on price level expectation. W = ù * Pe Nominal Wage = target Real Wage * Expected Price take after(prenominal) the nominal wage has been set but before both hiring, firms learn the actual price level (P). From this the real wa...If you religion to get a full essay, order it on our website:
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