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.

---

Definitions:

International Accounting Standards Board

An independent, private-sector body that develops and approves International Financial Reporting Standards (IFRSs).

IFRS

International Financial Reporting Standards are a set of accounting rules and standards developed by the International Accounting Standards Board (IASB) that guide the preparation of financial statements globally.

EU

A political and economic union of 27 European countries that are located primarily in Europe, aimed at fostering economic cooperation and collective regulation.

Securities Commissions

Governmental or regulatory bodies responsible for overseeing and regulating the securities and investments market, ensuring fair practices.