The sticky-wage model If it turns out that then unemployment and output are p=pe at their natural rates Real wage is less than its target, p pe so firms hire more workers and output rises above its natural rate Real wage exceeds its target,so p<pe firms hire fewer workers and output falls below its natural rate CHAPTER 13 Aggregate Supply slide 5CHAPTER 13 Aggregate Supply slide 5 The sticky-wage model If it turns out that W P e ω P P =  e P P= e P P e P P then unemployment and output are at their natural rates Real wage is less than its target, so firms hire more workers and output rises above its natural rate Real wage exceeds its target, so firms hire fewer workers and output falls below its natural rate 1