Self-correcting mechanism reveals that
A. real wages will increase if there is an increase in price.
B. nominal wages will fall if there is inflationary gap.
C. nominal wages will increase if there is recessionary gap.
D. in the long run economy will be in equilibrium at potential GDP.
Answer: D
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The expansion induced by a rise in the money stock will be greatest
A) the higher the level of capital mobility in an economy. B) the lower the level of capital mobility in an economy. C) when the economy has a fixed exchange rate. D) when this rise is fully sterilized by the monetary authority.
Which of the following is not a way in which high inflation reduces productivity?
a. High rates of inflation increase menu costs. b. Rapid inflation destroys work incentives and encourages speculation. c. Variable rates of inflation create insecurity. d. High inflation rates also have the power to deteriorate international competitiveness. e. High rates of expected inflation increase the real interest rate and thus reduce investment.