Question

1. Why Nominal wages are is sticky in the short run?

Answer 1

Nominal wages are sticky in the short run because they are often set by contracts or agreements between employers and employees. These contracts typically specify a fixed wage rate for a certain period of time, making it difficult for wages to adjust quickly in response to changes in economic conditions. Additionally, employees may be hesitant to accept wage cuts, leading employers to be reluctant to reduce wages even when faced with a decline in demand for their goods or services. This stickiness in nominal wages can contribute to wage rigidity and may result in unemployment or reduced hours for workers during periods of economic downturn.