If not all prices adjust instantly to changing economic circumstances, an unexpected fall in the price level leaves some firms with higher-than-desired prices, and these higher-than-desired prices depress sales and induces firms to the quantity of goods and services they produce.

Reduce

Explanation:

Nominal wages are slow to adjust because of long-term wage contracts. Also, social norms of fairness that influence the setting of wages change only slowly over time. The sticky-price theory states that not all prices adjust instantly to changing conditions, so an unexpected fall in the price level leaves some firms with higher-than-desired prices. These higher prices depress sales and induce firms to reduce the quantity of goods and services they produce.

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