If Workers and Firms Expect That Inflation Will Be 3

question 124

Multiple Choice

If workers and firms expect that inflation will be 3 percent next year,and real wages are not changing over time,by how much will nominal wages increase?

• A)3 percent
• B)more than 3 percent
• C)less than 3 percent
• D)depends on actual inflation for next year

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Definitions:

Long-Run Equilibrium

A state in which all factors of production are used efficiently, market supply and demand are balanced, and there is no tendency for change in the economic variables.

Expansionary Gap

A situation where the actual output in an economy exceeds the potential output due to high demand, often leading to inflationary pressures.

Short-Run Aggregate Supply

The total supply of goods and services that firms in an economy plan on selling during a short time period, given the current level of prices.

Actual Unemployment

The current level of unemployment in the economy, reflecting the number of people who are actively seeking employment but are without jobs.