Suppose the Economy Is in Long-Run Equilibrium and the Government

question 51

Multiple Choice

Suppose the economy is in long-run equilibrium and the government decreases its expenditures.Which of the following helps explain the logic of why the economy moves back to long-run equilibrium?

• A)as people revise their price-level expectations upward,firms and workers strike bargains for higher nominal wages.
• B)as people revise their price-level expectations upward,firms and workers strike bargains for lower nominal wages.
• C)as people revise their price-level expectations downward,firms and workers strike bargains for higher nominal wages.
• D)as people revise their price-level expectations downward,firms and workers strike bargains for lower nominal wages.