Question #301

The IMF claims that "Greece needs to rely on internal devaluation" and the austerity programs are designed to deflate nominal wages and prices which is claimed will make the economy more competitive as long as real unit labour costs fall faster than their trading partners. However, ignoring whether the logic is correct or not, which of the following propositions must also follow if the IMF logic is to follow

• If wages and prices fall at the same rate, then labour productivity has to rise and employment remain constant or grow.
• If wages and prices fall at the same rate, then labour productivity has to rise and employment must grow.
• If wages and prices fall at the same rate, then labour productivity has to rise and what happens to employment is irrelevant.
• None of the above

Answer #2079

Answer: If wages and prices fall at the same rate, then labour productivity has to rise and what happens to employment is irrelevant.

Explanation

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