Suppose that banks are less able to raise funds and so lend less. Consequently, because people and
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Question:
Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. If nominal wages are sticky, which of the following helps explains the change in output?
a. real wages fall, so firms choose to produce less
b. real wages fall, so firms produce more
c. real wages rise, so firms produce less
d. real wages rise, so firms produce more
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