Some economists believe that when workers and firms expect a contractionary monetary policy, _____
A) they try to prevent the price level from increasing.
B) their actions lead to a further increase in output.
C) they are likely to negotiate for relatively lower wages.
D) the monetary authority is forced to cancel its planned recessionary policy.
E) both output and employment increase even more than was originally planned.

Question

Quizplus · Accepted Answer

When workers and firms expect a contractionary monetary policy, they are likely to negotiate for relatively lower wages in anticipation of a decrease in economic activity. This can create a downward pressure on overall prices and inflation, allowing the monetary authority to achieve its goals with fewer interest rate hikes or other contractionary measures.

Some Economists Believe That When Workers and Firms Expect a Contractionary