Suppose an Economy Has a Law That Requires All Wages

question 38

Multiple Choice

Suppose an economy has a law that requires all wages to be adjusted quarterly to reflect changes in the general price level.This means wages either increase or decrease depending on the percentage change in the general price level.In this economy:

• A) there are recessions but no expansions.
• B) output is always at the full employment level.
• C) business cycles are less severe.
• D) the price level will remain fixed.
• E) workers are worse off in real terms than if wages were not indexed.

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Definitions:

Multicollinearity

A situation in statistical modeling where two or more predictors are highly correlated, making it difficult to discern their individual effects on the dependent variable.

Regression Coefficients

Values that represent the relationship between a dependent variable and one or more independent variables in regression analysis.

Standard Errors

A measure of the sampling variability of an estimate.

Multicollinearity

A statistical phenomenon where two or more predictor variables in a multiple regression model are highly correlated, leading to difficulties in determining the individual effect of each predictor.