If Firms Have Rational Expectations and If They Set Prices

question 16

Multiple Choice

If firms have rational expectations and if they set prices and wages on this basis, then on average

• A) prices and wages will be set at levels that do not clear the goods and labor markets.
• B) prices will be set at levels that ensure equilibrium in the goods market, but wages will be set at levels that do not clear the labor market.
• C) prices and wages will be set at levels that ensure equilibrium in the goods and labor markets.
• D) wages will be set at levels that ensure equilibrium in the labor market, but prices will be set at levels that do not clear the goods market.

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