Scenario 14-2

Multiple Choice

Scenario 14-2. The economy is in long-run equilibrium. Suddenly, due to corporate scandals, international tensions, and the loss of confidence among policymakers, citizens become pessimistic concerning the future. They maintain this level of pessimism for a long time.
-Refer to Scenario 14-2. Which of the following are consistent with the aggregate demand and aggregate supply theory?

A) The expected price level rises. Bargains are struck for higher increases in wages.
B) The expected price level rises. Bargains are struck for lower increases in wages.
C) The expected price level falls. Bargains are struck for higher increases in wages.
D) The expected price level falls. Bargains are struck for lower increases in wages.