Question

The Keynesian model argues that prices are sticky. One reason supporting this argument is thatA. nominal wages are flexible but real wages are not.B. government price ceilings.C. all unemployment is voluntary.D. nominal wages are inflexible downwards.
Since the nominal wage is deemed​ inflexible, a decrease in aggregate demand causes firms toA. increase wages to increase income so AD increases.B. lower the real wage.C. simply have all workers produce at a slower rate without any unemployment.D. reduce their workforce.

Answer 1

Answer:

The answers are:

D) nominal wages are inflexible downwards.

D) reduce their workforce.

Explanation:

Prices tend to be sticky because the sellers may be willing to increase their prices in response to economic changes but they will not be happy or willing to lower their prices, at least not fast. The same happens to wages, imagine you work for a company. Will you accept a wage reduction without complaining about it or even trying to stop it?

If we consider nominal wages to be inflexible downwards, when the demand for labor decreases, companies will most likely reduce their total workforce. Firing a few employees is usually much easier to deal with than lowering the wages of the total workforce of a company.