Question

QUESTION 32

1. Wages tend to be sticky

   	a.	because of contracts, social norms, and notions of fairness.
   	b.	because of contracts, but not social norms or notions of fairness.
   	c.	because of social norms and notions of fairness, but not contracts.
   	d.	None of the above are correct.

QUESTION 33

1. The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected,

   	a.	production is more profitable and employment falls.
   	b.	production is less profitable and employment rises.
   	c.	production is more profitable and employment rises.
   	d.	production is less profitable and employment falls.

QUESTION 34

1. Other things the same, if workers and firms expected prices to rise by 2 percent but instead they rise by 3 percent, then

   	a.	employment rises and production falls.
   	b.	employment falls and production rises.
   	c.	employment and production fall.
   	d.	employment and production rise.

QUESTION 35

1. Other things the same, if workers and firms expected inflation to be 2%, but it is only 1% then

   	a.	employment and production rise.
   	b.	employment and production fall.
   	c.	employment falls and production rises.
   	d.	employment rises and production falls.

QUESTION 36

1. The sticky-price theory implies that

   	a.	the short-run aggregate-supply curve is upward-sloping.
   	b.	an unexpected fall in the price level induces firms to reduce the quantity of goods and services they produce.
   	c.	menu costs influence the speed of adjustment of prices.
   	d.	All of the above are correct.

QUESTION 37

1. An increase in the expected price level shifts the

   	a.	short-run and long-run aggregate supply curves left.
   	b.	the short-run but not the long-run aggregate supply curve left.
   	c.	the long-run but not the short-run aggregate supply curve left.
   	d.	neither the long-run nor the short-run aggregate supply curve left.

QUESTION 38

1. A decrease in the expected price level shifts

   	a.	only the long-run aggregate supply curve right.
   	b.	only the short-run aggregate supply curve right.
   	c.	both the short-run and the long-run aggregate supply curve right.
   	d.	Neither the short-run nor the long-run aggregate supply curve right.

QUESTION 39

1. Recessions in China and India would cause

   	a.	the U.S. price level and real GDP to rise.
   	b.	the U.S. price level to rise and real GDP to fall.
   	c.	the U.S. price level and real GDP to fall.
   	d.	the U.S. price level to fall and real GDP to rise.

Answer 1

32)   The correct option is a) Wages tend to be sticky because of contracts, social norms, and notions of fairness. This is because nominal wages are slow to adjust to changes in the economic conditions and hence are sticky in the short run.

33)    The correct option is c) The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, production is more profitable and employment rises.
Similarly when the sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected production is less profitable and employment falls.

34)    The correct option is d) Other things the same, if workers and firms expected prices to rise by 2 percent but instead, they rise by 3 percent, then employment and production both rise.

35)     The correct option is b) employment and production fall.

36)      The correct option is d) All of the above are correct.