The social contract explanation for the existence of downwardly sticky wages focuses on
A. employment contracts that stipulate workers' wages, usually for a period of one to three years.
B. unspoken agreements between workers and firms that firms will not cut wages.
C. the incentive that firms have to hold wages above the market clearing rate.
D. the contention that workers in one industry may be unwilling to accept a wage cut, unless they know that workers in other industries are receiving similar cuts.
Answer: B
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The major disadvantage of commodity money is that
A) anybody can issue it and walk away. B) its value fluctuates with the scarcity of the commodity. C) it is subject to dollarization. D) the central bank cannot be prevented from issuing too much of it.
A firm has to choose between projects X and Y. Project X's internal rate of return is positive. If the cash flow of project Y is discounted at project X's internal rate of return, this firm will
A) choose project X if the net present value of project Y is positive. B) choose project X if the net present value of project Y is negative. C) choose project Y if the net present value of project Y is positive. D) choose project X regardless of the net present value of project Y.