Does inflation always cause workers losses due to decreases in real wages? Why or why not?
What will be an ideal response?
During most inflationary periods, all prices are rising, even wages, which are the prices of labor. Workers often assume that inflation is “robbing” them of income when, in fact, as prices go up, wages usually rise faster. Data from the U.S. economy reveal that wages and prices have been climbing together throughout most of the twentieth century. Real wages have risen rather steadily since the rise in nominal wage levels has exceeded the increase in price levels. This process has occurred whether inflation rates have been high or low. Real wages have fallen during certain short-term periods, notable during the 1980s, but this was not a period of very high inflation. Real wages generally rise because of increases in labor productivity and are not significantly affected by inflation.
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All of the following are automatic stabilizers EXCEPT
A) the federal income tax system. B) welfare payments. C) discretionary tax cuts. D) unemployment compensation.
Is it possible for a currency to appreciate relative to one currency, and depreciate relative to another?
a. No, a currency rises or falls against all currencies. b. No, this could happen only under the gold standard. c. Yes, but only if all governments agree on the new rates. d. Yes, this is possible in a world of floating rates.
A worker association that bargains with employers over wages and working conditions is called
a. a strike. b. an oligopoly. c. a firm. d. a union.
Briefly discuss the challenges developing countries face in capital and labor markets.
What will be an ideal response?