Business Cycle Theory The Sticky-Wage Model In this model, economists fall out the sluggish adjustment of nominal wages path to exempt why it is that the short-run aggregate ply curve is upwardly sloping. For sticky nominal wages, an increase in the wrong take lowers the real wage therefore making restriction cheaper for firms. Cheaper promote means that firms will hire more labor, and the increased 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 based on the target real wage, which may or may not be the labor supply & demand equilibrium, and on price level expectation. W = ù * Pe Nominal Wage = target Real Wage * Expected Price Level 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 trust to get a full essay, order it on our website:
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