Suppose the price level falls. Because of fixed nominal wage contracts, firms become less profitable and they cut back on production. This is a demonstration of the
A. classical dichotomy theory of the short-run aggregate-supply curve.
B. sticky-wage theory of the short-run aggregate-supply curve.
C. misperceptions theory of the short-run aggregate-supply curve.
D. sticky-price theory of the short-run aggregate-supply curve.
Answer: B. sticky-wage theory of the short-run aggregate-supply curve.
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The case of Airbus, an airplane manufacturing consortium in Europe, which receives large subsidies from several European countries, best exemplifies which rationale for protectionist policies?
A) helping domestic firms establish monopolies in world markets B) shielding workers from foreign competition C) protecting infant industries D) prevention of dumping in local markets
Economic growth is important because expansion in the output of goods and services
a. necessarily creates more jobs (more work for people). b. makes it possible for individuals to consume more and achieve higher living standards. c. leads to an increase in the general level of prices. d. generates additional tax revenues for the government.