Assume that workers have perfect information about changes in inflation. Which o
ID: 1213126 • Letter: A
Question
Assume that workers have perfect information about changes in inflation. Which of the following statements is true in this context?
a. Wage rates will not adjust immediately to the price level on account of the fixed contracts.
b. The aggregate supply curve of the economy will become perfectly elastic.
c. The aggregate supply curve will shift to the right.
d. Nominal wage rates will always exceed the real wage rate.
e. The economy will continue to produce at the potential level of real GDP.
Traditional Keynesians argued that when wages are rigid, changes in output result in:
a. small changes in goods market prices and a flat aggregate supply curve.
b. large changes in goods market prices and a flat aggregate supply curve.
c. large changes in goods market prices and a steep aggregate supply curve.
d. small changes in goods market prices and a steep aggregate demand curve.
e. small changes in goods market prices and a horizontal aggregate demand curve.
Explanation / Answer
1. Assume that workers have perfect information about changes in inflation. Which of the following statements is true in this context?
d. Nominal wage rates will always exceed the real wage rate.
2. Traditional Keynesians argued that when wages are rigid, changes in output result in:
e. small changes in goods market prices and a horizontal aggregate demand curve.