Some economists believe that when workers and firms expect a recessionary monetary policy,_____.
A)they act so as 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 recessionary monetary policy, they are likely to negotiate for relatively lower wages. This is because they anticipate a decline in economic activity and therefore anticipate lower revenues/profits, so they may be more willing to accept lower wages to preserve their jobs or competitiveness.

Some Economists Believe That When Workers and Firms Expect a Recessionary