Discuss some of the reasons behind downward stickiness of wages ...

[rayancarla1]

Discuss some of the reasons behind downward stickiness of wages and prices.

Question 2

If all U.S. government bonds are held by U.S. citizens, then:
 a. the bondholders will not earn interest on the bonds.
  b. there is no tax liability for funding the U.S. government's debt.
  c. there is no net change in national wealth when the national debt changes.
  d. the tax liability for funding the debt is not offset by the interest earnings of bondholders.
  e. the tax rates are not increased to repay the outstanding debts.

[peter]

Answer to Question 1

Empirical evidence supports several explanations for the downward stickiness of wages and prices. Firms may not be able to legally cut wages because of long-term labor contracts or a legal minimum wage. Efficiency wages may also limit a firm's ability to lower wage rates. Menu costs may cause price inflexibility as well.

Answer to Question 2

c