The sticky-wage theory of the short-run aggregate supply curve suggests that when the price level rises more than expected, wages do not immediately adjust due to their sticky nature (i.e., they are set for a longer period). As a result, real wages (the purchasing power of wages) fall when the price level rises unexpectedly. This makes it more profitable for firms to hire more workers and increase production because their costs (wages) are effectively lower in real terms compared to the prices they can charge for their goods.
Therefore, the correct answer is:
d. more profitable and employment and output rises.
1 answer