In the fooling model,should an expansion of aggregate demand cause fooling,the actual real wage ________ while the expected real wage ________.
A)rises,rises
B)rises,remains constant
C)falls,falls
D)falls,remains constant
E)falls,rises

Question

Quizplus · Accepted Answer

In the context of the fooling model, an expansion of aggregate demand that leads to fooling would cause the actual real wage to fall because employers are able to pay less in real terms due to inflation or other factors that workers may not immediately recognize. Meanwhile, the expected real wage rises because workers expect their wages to buy more than they actually can, due to not immediately recognizing the decrease in their purchasing power.

In the Fooling Model,should an Expansion of Aggregate Demand Cause