Respuesta :
Sticky wages, sticky pricing, and false perceptions of relative prices all have transient consequences in the aggregate demand and supply model.
Why may sticky pricing and compensation be a problem?
During a recession, employment often drops but wages remain stable. Most of the time, wages don't attain equilibrium; instead, they tend to remain constant. Because salaries are sticky, businesses are hesitant to cut them. Instead, a lot of companies will choose to let people go, which will increase unemployment.
How does the success of monetary policy in the short term depend on wages and prices that are sticky?
When the price level increases, producers are more inclined to make more money and hire more people because sticky salaries make them a better deal. When prices fall, on the other hand, manufacturers are willing to accept lesser earnings since they sell fewer things and workers are no longer a good deal.
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