Chapter 18, Problem 5MCQ

To determine

The correct option for nominal wages when employers are reluctant to decrease nominal wages during economic downturns and increase nominal wages during economic expansions.

Answer to Problem 5MCQ

From the available options, the correct option is sticky.

Explanation of Solution

When employers are not willing to decrease the nominal wages at the time of economic downturns and also not willing to increase the wages during economic expansions, then the nominal wages would be sticky because economic recession or slowdown and increase in the level of economic activity do not affect the wages of workers. Therefore, in this situation nominal wages are not flexible and unyielding as employers do not change the wage rate according to economic activity. As these wages are not flexible therefore the wages cannot be considered in long-run. And real wage change with the inflation or economic level therefore, it cannot be real wage.

Here, the correct option is e (sticky).

Economics Concept Introduction

Introduction: Nominal wage refers to monetary wage which is paid by the employer or organization to worker per hour basis or by salary.