Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 27, Problem 2.9P
To determine
The effect of expansionary
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In country A, all wage contracts are indexed to inflation. That is, each month wages
are adjusted to reflect increases in the cost of living as reflected in changes in the price
level. In country B, there are no cost-of-living adjustments to wages, but the workforce
is completely unionized. Unions negotiate three-year contracts. In which country is an
expansionary monetary policy likely to have a larger effect on aggregate output? Explain
your answer using aggregate supply and aggregate demand curves.
Which of the following is a policy tool
used to combat demand-pull inflation?
a) Contractionary fiscal policy
b) Expansionary monetary policy
The "rational expectations" school of economists, including Robert Lucas and Thomas Sargent, argue that changes in monetary policy cannot affect unemployment rates in the short run or long run.
True
False
Chapter 27 Solutions
Principles of Economics (12th Edition)
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