Question: Suppose you are CEO of a manufacturing company, and oil prices suddenly double, which boosts the inflation rate by 5%. While your principal job is to keep quarterly earnings rising, you are concerned that a recession might occur, and failing to maintain market share could be very costly in the longer run. Explain what steps you would take under the assumptions that:
(A) Both wages and prices are flexible.
(B) Prices can change quickly, but wages will respond only with a substantial lag.
(C) Both prices and wages are sticky.