In the market for jeans, which of the following events increases ...

[Bob-Dole]

In the market for jeans, which of the following events increases the de-mand for a pair of jeans?
 
  A. The wage rate paid to garment workers rises.
  B. The price of a denim skirt (a substitute for jeans) rises.
  C. The price of denim cloth falls.
  D. New technology reduces the time it takes to make a pair of jeans.

Question 2

Explain why expansionary monetary policy would not result in reduced unemployment rates if workers and firms have rational expectations.
 
  What will be an ideal response?

[vkodali]

Answer to Question 1

B The other factors listed change the supply; only answer B in-creases the demand.

Answer to Question 2

If workers and firms have rational expectations, they anticipate that expansionary monetary policy will increase inflation. The increase in inflation expectations will be incorporated into wage contracts, resulting in no change in the real wage. If there is no change in the real wage, then there will be no change in unemployment and no change in real GDP. As a result, there will be no trade-off between unemployment and inflation. Inflation will rise, but the unemployment rate will not be affected.

[Bob-Dole]

Excellent

[tandmlomax84]

TYSM