If Workers and Firms Expect That Inflation Will Be 5

question 125

Multiple Choice

If workers and firms expect that inflation will be 5 percent next year,and real wages are not changing over time,by how much will nominal wages increase?

• A)5 percent
• B)more than 5 percent
• C)less than 5 percent
• D)depends on actual inflation for next year

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Definitions:

Total Cost

The complete sum of all expenses incurred in the production of goods or services, including both fixed and variable costs.

Normal Profit

The minimum amount of profit required for a company to remain competitively active in the market; it is also the break-even point for a business.

Identical Firms

Companies within the same industry or market that offer products or services indistinguishable from one another to consumers.

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, reflecting the actual profitability of a firm beyond accounting profit.