As the Proportion of Labour Contracts That Index Wages to Prices

question 58

Multiple Choice

As the proportion of labour contracts that index wages to prices declines, we would expect that:

• A) nominal wages will become more sensitive to changes in unemployment.
• B) an increase in the unemployment rate will now have a smaller effect on inflation.
• C) the natural rate of unemployment will decrease.
• D) the natural rate of unemployment will increase.
• E) an increase in the unemployment rate will now have a larger effect on inflation.

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Definitions:

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