Explain what effect a reduction in productivity has on wage setting behavior, price setting behavior, the equilibrium real wage, the natural rate of unemployment, and the natural level of output
What will be an ideal response?
A reduction in A will cause a reduction in the real wage based on WS behavior; therefore, the WS curve shifts down by the change in A. The reduction in A increases the marginal cost of an additional unit of output so firms will raise the price. Hence, the real wage based on PS behavior will fall by A and the PS curve shifts down by A. Given the size of the shifts in the WS and PS curves, u does not change; however, the real wage does fall.
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If the inflation rate turns out to be greater than was is expected to be, the clear losers are
A. businesses. B. people on incomes adjusted by a COLA. C. borrowers. D. lenders.
The XYZ Corporation can make a real (inflation-adjusted) return on an investment of 9 percent. The nominal rate of interest is 13 percent and the rate of inflation is 7 percent. We can conclude that the:
A. investment will be profitable. B. investment will be unprofitable. C. real rate of interest is 4 percent. D. real rate of interest is 2 percent.
Which statement is the most accurate?
A. Labor unions today have very little economic power. B. Large employers today have very little economic power. C. Every few years a strike virtually shuts down our economy. D. Since WWII, the economy has never lost as much as one half of 1% of its work time because of strikes.
Suppose the Northwestern Bank has excess reserves of $12,000 and checkable deposits of $125,000. If the reserve requirement is 20 percent, what are the bank's actual reserves?
A. $25,000 B. $37,000 C. $44,000 D. $47,000