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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Definitions:

Language Acquisition Device (LAD)

A hypothetical module in the human brain posited by Noam Chomsky to underlie the innate ability to acquire language.

Noam Chomsky

An influential linguist and political activist, known for his theories on generative grammar and for critiquing media and foreign policy.

Linguistic Relativity Hypothesis

The theory that the structure of a language affects its speakers' worldview or cognition.

Grammatical Rules

The set of structural guidelines governing the composition of clauses, phrases, and words in any given natural language.