Suppose Two Groups of Workers Are Bargaining for Two-Year Contracts

question 73

Multiple Choice

Suppose two groups of workers are bargaining for two-year contracts, one on even years and one on odd years. Both set wages equal to a constant times a price level in the negotiating year and increase it by last year's inflation in the second year of the contract. The Fed initiates four years of disinflationary monetary policy. You should expect to see

• A) no recession.
• B) some reduction in actual GDP relative to its potential.
• C) some increase in unemployment above the natural rate.
• D) some pressure to adjust the inflation index of the contract in exchange for increased job security.
• E) b, c, and d.

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Definitions:

Journalize

The act of documenting monetary transactions within a journal during a stage in the accounting cycle.

Dividends

Payments made by a corporation to its shareholders, often as a distribution of profits.

Journal Entry

A record in accounting that notes the debit and credit transactions affecting a company's financial statements.

Stockholders

Individuals or entities that own shares in a corporation, giving them certain rights and responsibilities.