Workers and firms both expect that prices will be 3% higher next year than they are this year. As a result
A) workers will be willing to take lower wages next year.
B) the purchasing power of wages will rise if wages increase by 3%.
C) the short-run aggregate supply curve will shift to the left as wages increase.
D) aggregate demand will increase by 3%.
Answer: C
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With an upward sloping LM curve, a rising interest rate __________ money demand, so that a contractionary monetary policy is __________ than in the case of a vertical LM curve
A) raises; stronger B) raises; weaker C) lowers; stronger D) lowers; weaker
What is the major cost associated with fighting ongoing inflation?
a. Higher interest rates. b. Lost potential output. c. Lower price level. d. Higher price level. e. None of the above.
Figure 7-8
Of the graphs in Figure 7-8, which represents fixed cost?
a.
1
b.
2
c.
3
d.
4
The flatter is the IS curve,
A) the more effective is monetary policy. B) the less effective is monetary policy. C) the effectiveness of monetary policy does not change. D) a given change in the money supply will have a smaller effect on output.