Which of the following do we assume to be true in the short run? Changes in wage

Question

Which of the following do we assume to be true in the short run?

Changes in wages and input prices are smaller than the changes in the prices of other goods and services (i.e. wages and input prices are stickier than output prices).

Changes in wages and other input prices are larger than the changes in the prices of other goods and services (i.e. output prices are stickier than wages and input prices).

"Wages and other input prices adjust in proportion to changes in the prices of goods and services (i.e. wages, input prices, and output prices are equally flexible).

" Wages and other input prices do not change.

Explanation / Answer

Nominal wages are sticky because of labor contracts that are periodic and so the renewal occurs only after a certain period. Hence changes in wages or input prices are usually smaller than prices of output. (Option 1)

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