If All Firms Have Rational Expectations and Wages and Prices

question 292

Multiple Choice

If all firms have rational expectations and wages and prices are flexible, there will be

• A) high unemployment because firms set their wages above the equilibrium wage rate.
• B) a shortage of labor because firms set their wage below the equilibrium wage rate.
• C) no unemployment.
• D) high unemployment because firms know the "true model."

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Definitions:

American Law Institute Test

A standard used to determine criminal liability in insanity defense cases, assessing if the defendant lacked the ability to understand the wrongfulness of their actions due to mental illness.

Durham Test

A test used to detect the production of gas by microorganisms in sugar fermentation processes.

M'Naghten Rule

A legal principle that defines the insanity defense by assessing if a defendant was unable to understand the nature of their actions or distinguish right from wrong at the time of the crime.

Irresistible Impulse Test

A legal test for insanity that assesses if a defendant was unable to control his or her actions due to a mental illness.