Pessimism
Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time.

-Refer to Pessimism.What happens to the expected price level and what's the result for wage bargaining?
A)The expected price level rises.Bargains are struck for higher wages.
B)The expected price level rises.Bargains are struck for lower wages.
C)The expected price level falls.Bargains are struck for higher wages.
D)The expected price level falls.Bargains are struck for lower wages.

Question

Pessimism
Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time.

-Refer to Pessimism.What happens to the expected price level and what's the result for wage bargaining?
A)The expected price level rises.Bargains are struck for higher wages.
B)The expected price level rises.Bargains are struck for lower wages.
C)The expected price level falls.Bargains are struck for higher wages.
D)The expected price level falls.Bargains are struck for lower wages.

Quizplus · Accepted Answer

Pessimism leads to a decrease in demand for goods and services, which in turn leads to a decrease in production and a decrease in the expected price level. As a result, wage bargaining is likely to result in lower wages because companies are not willing to pay higher wages when there is a lack of demand for their goods and services. Therefore, the expected price level falls and bargains are struck for lower wages.

Pessimism Suppose the Economy Is in Long-Run Equilibrium. Then Because of of Corporate