If Firms Have ________ and If They Set Prices and Wages

question 96

Multiple Choice

If firms have ________ and if they set prices and wages on this basis, then prices and wages will, on average, be set at market-clearing levels.

• A) negative inventories
• B) rational expectations
• C) excess capacity
• D) no competition

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Definitions:

Phillips Curve

An economic concept that describes an inverse relationship between rates of unemployment and corresponding rates of inflation, suggesting that higher inflation is associated with lower unemployment and vice versa.

1970s

A decade marked by significant events including economic turmoil, the oil crisis, social movements, and the Cold War's continuing tension.

Price Expectations

The beliefs or forecasts that consumers and producers have regarding future prices, which can influence their economic decisions.

Long-run Phillips Curve

A concept suggesting that in the long term, there is no trade-off between inflation and unemployment, implying that efforts to reduce unemployment will not lead to higher inflation in the long run.