If Firms Have Rational Expectations and If They Set Prices

question 16

Multiple Choice

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

• A) prices and wages will be set at levels that do not clear the goods and labor markets.
• B) prices will be set at levels that ensure equilibrium in the goods market, but wages will be set at levels that do not clear the labor market.
• C) prices and wages will be set at levels that ensure equilibrium in the goods and labor markets.
• D) wages will be set at levels that ensure equilibrium in the labor market, but prices will be set at levels that do not clear the goods market.

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Definitions:

Melodramas

A genre of drama characterized by exaggerated emotions, stereotypical characters, and interpersonal conflicts.

Social

Pertaining to society or its organization, often involving the collective behavior and interactions among individuals within a community.

Political

Pertaining to or concerned with the affairs of government, policy-making, or the administration of the state.

Kaleidoscopic

Having complex patterns of colors; changing rapidly in a dynamic, complex manner.