Figure 8-3
-Employing Figure above and assuming the nominal money supply is not altered, a permanent adverse supply side shock puts ________ pressure on nominal wages during renegotiation provided ________.
A) no; the reduction in the natural real GDP YN to Y1 is exactly offset by the fall in goods demanded due to the rise in the price level
B) downward; the reduction in the real GDP YN to Y2 is exactly offset by the fall in goods demanded due to the rise in the price level
C) upward; the reduction in the natural real GDP is exactly offset by the fall in goods demanded due to the rise in the price level
D) no; since the natural real GDP does not change

Question

Figure 8-3 
-Employing Figure above and assuming the nominal money supply is not altered, a permanent adverse supply side shock puts ________ pressure on nominal wages during renegotiation provided ________.
A) no; the reduction in the natural real GDP YN to Y1 is exactly offset by the fall in goods demanded due to the rise in the price level 
B) downward; the reduction in the real GDP YN to Y2 is exactly offset by the fall in goods demanded due to the rise in the price level 
C) upward; the reduction in the natural real GDP is exactly offset by the fall in goods demanded due to the rise in the price level 
D) no; since the natural real GDP does not change

Quizplus · Accepted Answer

If the reduction in natural real GDP is exactly offset by the fall in goods demanded due to the rise in the price level, there is no pressure on nominal wages during renegotiation.

Figure 8-3 -Employing Figure Above and Assuming the Nominal Money Supply Is