The Argument That the Nominal Wage Is Fixed Because of Long-Term

question 39

Multiple Choice

The argument that the nominal wage is fixed because of long-term labour contracts

• A) explains sticky price models.
• B) closely fits the real world.
• C) does not take into account why such a contract would be written.
• D) explains equilibrium business cycle models.
• E) means that productivity shocks are an important cause of business cycles.

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Definitions:

Aggregate Demand

The total demand for all goods and services within an economy at a given overall price level and in a given time period.

Labor Productivity

Labor productivity measures the output of goods and services produced by labor per unit of time, often assessed to evaluate the efficiency of a workforce.

Velocity of Money

The rate at which money is exchanged from one transaction to another and how much a unit of currency is used in a given period of time.

Classical Assumption

In economics, refers to the traditional ideas that free markets function under equilibrium with full employment and price flexibility.