A Supply Shock That Reduces Labor Productivity

question 67

Multiple Choice

A supply shock that reduces labor productivity

• A)causes accelerating inflation if the Fed attempts to maintain the original output level.
• B)will increase real wages if nominal wages are flexible.
• C)will reduce the level of output at the natural level of real GDP even if employment does not decline.
• D)A and C.

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Definitions:

Indifference Map

A graphical representation of different combinations of goods between which a consumer is indifferent, showing levels of utility.

Budget Line

A budget line represents the combinations of two goods that a consumer can purchase with a specific budget, given the prices of those goods.

Utility Maximization

The process by which individuals choose consumption bundles that maximize their overall satisfaction or utility, subject to their budget constraints.

Indifference Map

A graphical representation that shows different bundles of goods between which a consumer is indifferent, reflecting their preferences and consumption choices.