Answer:
C) nominal wages are sticky.
Explanation:
One of the worst possible economic combinations is long periods of disinflation and high unemployment. Disinflation refers to a significant reduction in the rate of inflation.
When a central bank needs to establish a contractionary monetary policy in order to reduce high inflation rates, it needs to do it in a credible way that will help reduce the unwanted effect of high unemployment. If the central bank's policies are credible, then the market will have a high confidence in the policies and this will help to prevent the economy from collapsing.
High unemployment is usually a negative effect of contractionary monetary policy because wages are sticky, everyone likes a raise but no one accepts a wage reduction. Only when businesses and employees trust the central bank's policies, will they be willing to make an extra effort until the economy rebounds.
