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

question 30

Multiple Choice

Let all workers sign three-year contracts with 10 percent wage increases guaranteed for each year. Let actual GDP match its potential to begin with and assume that potential GDP grows 3 percent per year. If the money supply were to grow at 5 percent per year, given markup pricing, you should expect to see

• A) continued 10 percent inflation per year with no recession.
• B) continued 10 percent inflation per year with some recession.
• C) a reduction in inflation to 2 percent per year with no recession.
• D) a reduction in inflation to 2 percent per year with some recession.
• E) cannot tell from the information provided.

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