Let All Workers Sign Three-Year Contracts with Guaranteed 10 Percent

question 41

Multiple Choice

Let all workers sign three-year contracts with guaranteed 10 percent wage increases built in for each year. Let GDP match potential GDP to begin with and let potential GDP grow at 3 percent per year. To maintain GDP at potential, the money supply would have to grow at an annual rate of

• A) 3 percent because price inflation under the markup model is 3 percent.
• B) 7 percent because price inflation under the markup model is 7 percent.
• C) 10 percent because price inflation under the markup model is 10 percent.
• D) 13 percent because price inflation under the markup model is 10 percent.
• E) 13 percent because price inflation under the markup is 13 percent.

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