Suppose the Economy Is in Long-Run Equilibrium and the Government

question 51

Multiple Choice

Suppose the economy is in long-run equilibrium and the government decreases its expenditures.Which of the following helps explain the logic of why the economy moves back to long-run equilibrium?

• A)as people revise their price-level expectations upward,firms and workers strike bargains for higher nominal wages.
• B)as people revise their price-level expectations upward,firms and workers strike bargains for lower nominal wages.
• C)as people revise their price-level expectations downward,firms and workers strike bargains for higher nominal wages.
• D)as people revise their price-level expectations downward,firms and workers strike bargains for lower nominal wages.

---

Definitions:

Psychosocial Stages

A theory by Erik Erikson outlining eight stages of psychological development, from infancy to late adulthood, each characterized by a specific conflict that contributes to a major aspect of personality.

Competence

In self-determination theory, feeling effective in one’s interactions with the social environment and experiencing opportunities to exercise and express one’s capacities.

Proximal Processes

Reciprocal interactions between a person and her immediate external environment, including other people, the physical environment, or informational sources such as books or movies. In Bronfenbrenner’s biological model, all developments are a function of these processes.

Bronfenbrenner's Model

A theoretical model proposing that human development is influenced by various types of environmental systems, from immediate family to broader societal contexts.