When the real wage that firms pay employees falls

When the real wage that firms pay employees falls -...

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When the real wage that firms pay employees falls, labor becomes cheaper. However,  since the amount of output produced for each unit of labor is still the same, firms choose  to hire more workers and increase revenues and profits. When firms hire more labor,  output increases. Thus, when the price level rises, output increases because of sticky  wages.  Let's summarize the chain of events that leads from an increase in the price level to an  increase in output in the sticky-wage model. When the price level rises, real wages fall.  When real wages fall, labor becomes cheaper. When labor becomes cheaper, firms hire  more labor. When firms hire more labor, output increases.  Worker-Misperception Model  The worker-misperception model of the upward sloping short- run aggregate supply  curve is again based on the labor market. This time, unlike in the  sticky-wage model
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When the real wage that firms pay employees falls -...

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