When inflation rises unexpectedly, it is generally the case that
A. nominal interest rates and real interest rates will both rise at the same rate
B. nominal interest rates will rise while real interest rates will decline
C. real interest rates will rise while nominal interest rates will decline
D. all nominal wages will immediately be adjusted upwards
E. real wages will have to be adjusted upwards
If inflation were always completely unanticipated, then
A. the real rate of return on interest-bearing assets could not be easily predicted
B. real interest rates would always be negative
C. menu costs would not occur
D. there would not be a need for wage indexation
E. all of the above
Economists tend to agree that
A. the best inflation target is a zero percent inflation rate
B. the best inflation target is a two percent inflation rate
C. policy makers should never set inflation targets
D. any inflation target is fine, as long as policy makers announce it in advance
E. it is silly to think that all economists will ever agree on anything
Labor contracts that include so-called COLA provisions
A. tend to link money wages to price increases
B. serve to preserve the purchasing power of workers
C. are a common form of wage indexation in many labor markets
D. often tie nominal wages to a specific price index
E. all of the above
Wage indexation
A. increases nominal wages periodically in accordance with the increase in prices over a given time period
B. helps the economy adjust more rapidly back to the natural unemployment rate after a supply shock
C. is a method of preventing inflation by taxing away what workers may have gained from unanticipated inflation
D. provides protection against purchasing power loss for over half of the U.S. work force
E. is most prevalent n countries with a history of low inflation rates
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