Suppose an Economy Has a Law That Requires All Wages

question 20

Multiple Choice

Suppose an economy has a law that requires all wages to be adjusted quarterly to reflect changes in the general price level.This means wages either increase or decrease depending on the percent change in the general price level.In this economy

• A) there are recessions but no expansions.
• B) output is always at the full-employment level.
• C) business cycles are less severe.
• D) the price level will remain fixed.
• E) workers are worse off in real terms than if wages were not indexed.

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