Use the table, with data for workers and firms, to answer the question. The payoff cells are labeled A, B, C, and D.

\begin{array}{l}\text { Table: Spending and Producing }\\\begin{array} { | l | l | l | } \hline & { \begin{array} { c } \text { Firms produce and hire a } \\\text { lot. }\end{array} } & { \begin{array} { c } \text { Firms cut back on production and } \\\text { hiring. }\end{array} } \\\hline \text { Workers spend a lot. } & \begin{array} { l } \text { A. Workers spend a lot, } \\\text { and firms hire a lot. }\end{array} & \begin{array} { l } \text { B. Workers overspend, and firms } \\\text { underproduce. }\end{array} \\\hline \begin{array} { l } \text { Workers cut back on } \\\text { spending. }\end{array} & \begin{array} { l } \text { C. Workers underspend, } \\\text { and firms overproduce. }\end{array} & \begin{array} { l } \text { D. Workers spend little, and firms } \\\text { sell little. }\end{array} \\\hline\end{array}\end{array}

There are multiple equilibria in the table. The desired outcome is cell A, but there is an equal chance of an equilibrium outcome in cell D. Which of the following is an appropriate approach to resolving the problem through communication, so that the outcome in cell A is likely?
A) The government decrees that firms cannot reduce employment.
B) The government conducts an advertising campaign that urges households to increase their saving.
C) Workers expect that their jobs are just as secure as their parents' jobs were.
D) Firms announce that they will not cut production or jobs as long as consumer spending does not fall.

In an Indefinitely Repeated Game, the Players Face

Multiple Choice

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