Author Question: If firms have rational expectations and if they set prices and wages on this basis, then on average (Read 83 times)

acc299 · **on:** Apr 19, 2019

Question 1

If firms have rational expectations and if they set prices and wages on this basis, then prices and wages

◦ will always be at market-clearing levels.
◦ will, on average, be set at market-clearing levels.
◦ will always be above market-clearing levels.
◦ will never be set at market-clearing levels.

Question 2

If firms have rational expectations and if they set prices and wages on this basis, then on average

◦ prices and wages will be set at levels that do not clear the goods and labor markets.
◦ prices will be set at levels that ensure equilibrium in the goods market, but wages will be set at levels that do not clear the labor market.
◦ prices and wages will be set at levels that ensure equilibrium in the goods and labor markets.
◦ wages will be set at levels that ensure equilibrium in the labor market, but prices will be set at levels that do not clear the goods market.

orangecrush · **Reply #1 on:** Apr 19, 2019

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