Asked by Carley Hirsch on Jun 27, 2024
Verified
People had been expecting the price level to be 120 but it turns out to be 122. In response Robinson Tire Company increases the number of workers it employs. What could explain this?
A) Both sticky price theory and sticky wage theory
B) Sticky price theory but not sticky wage theory
C) Sticky wage theory but not sticky price theory
D) Neither sticky wage theory nor sticky price theory
Sticky Price Theory
An economic theory suggesting that prices of goods do not adjust immediately to changes in supply and demand, leading to disequilibrium in the market.
Sticky Wage Theory
The hypothesis that wages do not adjust quickly to changes in economic conditions, leading to unemployment and other inefficiencies.
Price Level
A measure of the average prices of goods and services in an economy at a given time, often monitored to understand inflation and the cost of living.
- Recognize the role of expectations in the sticky wage and sticky price theories, especially in response to unexpected changes in the price level.
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Learning Objectives
- Recognize the role of expectations in the sticky wage and sticky price theories, especially in response to unexpected changes in the price level.
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