Recall Application 3, "Can Labor Market Policies Account for the Great

question 158

Multiple Choice

Recall Application 3, "Can Labor Market Policies Account for the Great Depression," to answer the following questions:
-According to the application, what was observed during the Great Depression that contradicts the basic real business cycles?

• A) Gold prices decreased during the great depression, but the basic real business cycle models predicted it to increase.
• B) Real wages decreased during the Great Depression, but the basic real business cycle models predicted it to increase.
• C) Unemployment rates decreased during the great depression, but the basic real business cycle models predicted it to increase.
• D) Real wages increased during the Great Depression, but the basic real business cycle models predicted it to decline.

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Definitions:

Pesos

The official currency of Mexico and several other Latin American countries.

Purchasing Power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach to estimate the exchange rate at which two currencies will be at parity, or have the same purchasing power.

Nominal Exchange Rate

The nominal exchange rate is the rate at which one country's currency can be exchanged for another country's currency without adjustment for inflation.

Price Level

A measure of the average prices of goods and services in an economy over a period of time.