Suppose the government lowers unemployment by hiring more government workers. How does it matter whether wages and prices are sticky?
What will be an ideal response?
As long as wages and prices are sticky, then the decrease in the unemployment rate will not cause a substantial increase in wages. However, if workers throughout the economy perceive an opportunity to seek an increase in their real wage, employers may need to comply in order to retain and attract qualified workers. If nominal wages increase, producers will need to raise prices. The resulting inflation will cause expected inflation to rise, sparking further increases in the nominal wage.
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Congress created the Federal Reserve System
A) to serve as a lender of last resort. B) to process the receipt of taxes received by the Internal Revenue Service. C) to regulate the value of the U.S. dollar against foreign currencies. D) to provide a source of mortgage loans to the residential housing market.
"Government should impose stricter regulations on oil drilling" is an example of a
A) normative statement. B) positive statement. C) negative statement. D) normal statement.
Assume a simplified banking system in which all banks are subject to a uniform reserve requirement of 20 percent and checkable deposits are the only from of money. A bank that received a new checkable deposit of $10,000 would be able to extend new loans up to a maximum of:
a. $2,000 b. $8,000. c. $9,000 d. $10,000.
Positive externalities
a. result in a larger than efficient equilibrium quantity. b. result in smaller than efficient equilibrium quantity. c. result in an efficient equilibrium quantity. d. can be internalized with a corrective tax.