Collective bargaining agreements that prohibit wage cuts for the duration of the contract contribute to:
A) A wealth effect
B) A multiplier effect
C) An increase in aggregate supply
D) A price level that is inflexible downward

Question

Quizplus · Accepted Answer

Collective bargaining agreements that prohibit wage cuts for the duration of the contract create a situation where the price level is inflexible downward. This means that if there is a decrease in demand or an increase in supply, firms may not be able to lower wages to adjust to the new market conditions. This inflexibility can lead to inefficiencies and may result in a higher unemployment rate as firms are unable to adjust wages to align with market conditions.

Collective Bargaining Agreements That Prohibit Wage Cuts for the Duration