Question

5. If the nominal wage increases by 5% and workers do not perceive that inflation has increased by 7% how would workers respond to this misperception?  
the real wage has fallen, work fewer hours
the real wage has increased, work more hours
the nominal wage has fallen, work more hours
the nominal wage has increased, work more hours

7. The Heresy of Keynes is that while in the classical model market forces always drive the economy to equilibrium at full employment, the Keynesian model can reach equilibrium at any level of employment even very high unemployment.

ture

false

8. In Keynes' Liquidity Preference Theory, individuals are assumed to hold their wealth in which of the following forms of assets?

bonds and money   
stocks and bonds
stocks, bonds, money and commodities
gold, bitcoin and toilet paper

Answer 1

Ques: Option D is correct. Increase in nominal wages by 5% will lead to increase in nominal wage of the worker but since worker do not preceive increase in inflation they will work more.

Ques: The above statement is true. This is because of the assumption of the classical model which is complete wage price flexibility as a result economy always bring back to full employment level while keynesian said that there is no full employment level and intersection of AS and AD cure will determine equilbrium which can be less than full employment level.

Ques: Option A is correct. This is because as per the keynesian liquidity preference theory money can be used only in the form of money and bonds.