Use the Following to Answer Questions

question 88

Multiple Choice

Use the following to answer questions .
Exhibit: AD-AS and the Inflation-Unemployment Cycle
-(Exhibit: AD-AS and the Inflation-Unemployment Cycle) Suppose initially the economy was at point 1 and as a result of
Stabilization policies, it is now at point 3. Consequently, there will be pressure for

• A) workers to settle for lower nominal wages.
• B) firms to decrease prices.
• C) workers and firms to incorporate price increases into their expectations.
• D) the Fed to buy bonds in the open market.

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Definitions:

Free Trade

The economic policy of not discriminating against imports from and exports to foreign jurisdictions, allowing goods to move across borders without regulatory or tariff barriers.

Comparative Advantage

The ability of a country or firm to produce a particular good or service at a lower opportunity cost than its competitors, underpinning the rationale for international trade.

Job Losses

The act of becoming unemployed due to factors like economic downturns, restructuring, or automation.

Job Gains

Increases in the number of jobs available in an economy, indicating employment growth and potentially a strengthening economic condition.