An increase in which of the following variables will cause a ...

[debasdf]

An increase in which of the following variables will cause a reduction in the demand for domestic goods?
 
  A) foreign income
  B) the real exchange rate
  C) consumer confidence
  D) domestic income
  E) all of the above

Question 2

Explain how a reduction in the proportion of contracts that are indexed affects the relationship between changes in the unemployment rate and inflation.
 
  What will be an ideal response?

[atrochim]

Answer to Question 1

B

Answer to Question 2

As the proportion of labor contracts that are indexed falls, the effects of changes in unemployment on inflation would fall. A reduction in u will cause an increase in inflation. When inflation rises in a period, some contracts (those that are indexed) will call for an immediate increase in wages further increasing inflation within that period. As indexation becomes less prevalent, that secondary effect (caused by the indexed contracts) on inflation will be reduced.