To compare the purchasing power of nominal wages in two different years, one must:
A. increase both quantities by the same percentage increase in a price index.
B. deflate both quantities by a common price index.
C. compare the nominal values.
D. adjust both quantities by the real interest rate.
Answer: B
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A country cannot produce a mix of products with a higher value than where
A) the isovalue line is tangent to the production possibility frontier. B) the isovalue line intersects the production possibility frontier. C) the isovalue line is above the production possibility frontier. D) the isovalue line is below the production possibility frontier. E) the isovalue line is tangent with the indifference curve.
The economy is initially in long-run equilibrium. The AD curve shifts to the right and the price level rises. Assuming that the economy is self-regulating, the SRAS curve will shift to the left and the price level will rise even further. If the price level now remains constant, what have we witnessed?
A) one-shot demand-induced inflation B) continued demand-induced inflation C) one-shot supply-induced inflation D) one-shot inflation that was partly demand-induced and partly supply-induced E) continued supply-side inflation