Multiyear Labor Contracts Slow the Rate of Adjustment of Wages

question 59

Multiple Choice

Multiyear labor contracts slow the rate of adjustment of wages because

• A) people get used to the size of their paychecks and are reluctant to change them up or down.
• B) they are negotiated in real, not nominal, terms.
• C) firms set their prices in terms of wages and are not able to change them when labor costs vary frequently.
• D) such contracts are not all negotiated, and thus up for renewal on the same cycle, causing the economic impact of older contracts to linger.
• E) new labor contracts normally specify wage rates equal to the current national average wage rate.

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Definitions:

Cognitive Explanation

A psychological interpretation focusing on understanding how mental processes like perception, memory, and problem-solving work and influence behavior.

Information Processing

The approach to psychology that treats the mind as a computer, focusing on how people process, store, retrieve, and manipulate information.

Environmental Influences

External factors that can affect an individual's behavior, development, and lifestyle, including social, cultural, and physical environments.

Gender Constancy

The understanding that an individual's gender identity is fixed and does not change over time or due to external appearances.