ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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False
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True
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Either A or B
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None of the above
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Detailed explanation-1: -Wage setting and price setting determine the equilibrium rate of unemployment. Since Pe equals P, then: We can divide both sides by the price level: This relation between the real wage and the rate of unemployment-wage-setting relation.
Detailed explanation-2: -What Is the Interest Rate Effect? The interest rate effect is the change in borrowing and spending behaviors in the aftermath of an interest rate adjustment.
Detailed explanation-3: -Ans: If for example, financial markets function poorly, and firms cannot borrow and have to finance investment through profits (retained earnings), then the interest rate will have no effect on investment.
Detailed explanation-4: -The supply of labour is determined by the wage setting (WS) curve. The higher the wage, the more willing people are to work. The demand for labour is shown by the price setting (PS) curve. Firms offer wages based on the level of productivity, the level of competition, taxes and other factors.