Understanding Sticky Wage Theory in Economics: Key Concepts
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SOLVED: For example, the sticky-wage theory asserts that output prices adjust more quickly to changes in the price level than wages, in part because of long-term wage contracts. Suppose a firm signs a contract agreeing to pay its workers 15 per hour for the next year, based on an expected price level of 100. If the actual price level turns out to be 110, the firm's output prices will rise, and the wages the firm pays its workers will remain fixed at the contracted level. The firm will respond to
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