A High Degree of Real Wage Flexibility Will Tend to Reduce

question 33

Multiple Choice

A high degree of real wage flexibility will tend to reduce the costs to a country of joining a currency union because

• A) all of the reasons given in these answers are correct.
• B) real wages fall rapidly in a recession and the economy moves quickly back to long-run equilibrium, so limiting the duration of the recession even when exchange rate adjustment is not possible.
• C) workers will move from a country in which aggregate demand falls to other countries of the currency union, and so unemployment remains lower than it otherwise would.
• D) real wages fall and so offset the inflationary effect of switching from the old currency to the new common currency.

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