Answer to Question #219434 in Microeconomics for jenni

Question

1.    If wages adjust fully to price increases in the long run, fiscal policy will

a.     have no affect on the price level.

b.    have no affect on output.

c.     have no affect on either output or the price level.

d.    affect both output and the price level.

Answer 1

The answer is a. Have no effect on the price level.

Explanation -

If the wages adjust fully then the fiscal policy will not have effect in the long run market. It will increase the price in the market.