Advanced Micro Economics - II CIA

Which of the following factors primarily influences wage levels in an economy?

• a) Government subsidies

• b) Labor demand and supply

• c) Price of consumer goods

• d) Trade agreements

Wage increases always lead to proportional increases in consumer prices. Say True or false

Assertion and Reasoning

Assertion (A): Wages tend to rise faster in a growing economy.
Reason (R): A higher demand for labor in a growing economy pushes up wages.

• a) Both A and R are true, and R is the correct explanation of A.

• 
  b) Both A and R are true, but R is not the correct explanation of A.

• c) A is true, but R is false.

• d) A is false, but R is true.

Say True or False: New Keynesian economists argue that wages and prices are fully flexible in the short run.

4. Match the Following

Match the New Keynesian policy tools with their descriptions:

Policy Tool Description

1. Fiscal Stimulus - a) Reducing interest rates to boost investment

2. Monetary Policy - b) Government spending to increase aggregate demand

3. Wage and Price Controls - c) Regulating wages to manage inflation

• a, c and b

• c, a an b

• b, a and c

• a, b and c

1. In the Mundell-Fleming model, under a fixed exchange rate regime, which of the following policies is most effective in influencing output?
   

• 1. a) Fiscal policy

• 1. b) Monetary policy

• 1. c) Exchange rate interventions

• 1. d) Trade policies

1. True or False: In a fixed exchange rate regime, monetary policy is ineffective in controlling domestic output. Say true or false

1. State True or False: The balance of payments records a country’s transactions with the rest of the world, including both current and capital accounts.

1. The Mundell-Fleming model assumes perfect capital mobility under ________ exchange rate systems.

1. A country’s balance of payments is composed of the current account and the ________ account.