If Firms Have Rational Expectations and If They Set Prices

question 58

Multiple Choice

If firms have rational expectations and if they set prices and wages on this basis, then prices and wages

• A) will always be at market-clearing levels.
• B) will, on average, be set at market-clearing levels.
• C) will always be above market-clearing levels.
• D) will never be set at market-clearing levels.

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Definitions:

Trypanophobia

Trypanophobia is an extreme fear of medical procedures involving needles or injections.

Specific Phobia

A type of anxiety disorder characterized by an excessive and unreasonable fear of a specific object, situation, or activity.

Abnormal Behavior

Patterns of emotions, thoughts, and actions deemed pathological for cultural, societal, or situational contexts.

Posttraumatic Stress Disorder

A mind state of distress initiated by the direct exposure to or observation of a frightening situation, accompanied by recurring recollections, bad dreams, and high levels of stress.