Consider Two Economies: One Operates According to the Sticky-Wage Model

Essay

Consider two economies: one operates according to the sticky-wage model and one operates under the sticky-price model.Aggregate demand unexpectedly falls in both countries,leading to a recession and an unexpected decline in price level and the demand for output.a.Use a graph of the labour market in each country to illustrate the impact of the recession on the level of employment and the real wage.b.In which country is the real wage procyclical? In which country is the real wage counter-cyclical?