Gordon Suggests That Full Indexation of Production Costs to Nominal

question 126

Multiple Choice

Gordon suggests that full indexation of production costs to nominal AD would solve the macroeconomic externality.However,individual firms would be unlikely to extend full indexation to their workers because

• A)its local customers may not buy its products at the new price level.
• B)its suppliers may reside in foreign countries and are therefore,not subject to indexation.
• C)other competitor firms will not index their wages.
• D)All of the above.

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Definitions:

Creditor Beneficiary

A third party that benefits from a contract between two other parties, particularly when one party promises to pay a debt owed to the creditor beneficiary by the other party.

Legal Duty

An obligation imposed by law upon an individual or entity to act or refrain from acting in a certain manner.

Donee Beneficiary

A third party beneficiary to a contract who receives a benefit from the contract as a gift.

Promisor

The person or party in a contract who has made a promise to perform or refrain from performing a certain act.