00:01
Okay, so i see that you need help with this question.
00:03
And to answer the question about this topic, so for example, the sticky wage theory asserts that output prices adjust more quickly to change in the price level than wages, in part because long -term wage contracts, suppose a firm signs a contract agreeing to pay its workers $15 per hour for the next year based on an expected price level of 100.
00:38
If the actual price level turns out to be 110, the firm's output prices will rise in the wages, and the wages the firm pays its workers will remain fixed at the contracted level.
00:51
The firm will respond to the unexpected increase in the price level by reducing the quantity of output its supplies.
00:59
If many firms face similarly rigid wage contracts, the unexpected increase in the price level causes the quantity of output supplied to fall below the natural rate of output.
01:13
Okay, so one, if the actual price level turns out to be 110, the firm's output prices will rise due to the higher price level.
01:52
Two, the wages, the firm pays its workers will remain fixed at the contracted level...
