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It is 2023. Sweden has a meeting in which they discuss the future of the economy with representatives from workers, firms and the government. They
It is 2023. Sweden has a meeting in which they discuss the future of the economy with representatives from workers, firms and the government. They are concerned about weak economic conditions in Sweden, the government negotiates with all of Sweden's major employers and unions in the country to reduce all nominal wages by 10%. In this case, the change in interest rates is likely to lead government spending to be ______________higher/lower/unchanged) and investment spending to be _____________ (higher/lower/unchanged) than if the central bank had not intervened. Employment will_____________ (grow/fall). Whether the central bank intervenes or not, the level of both output and employment in the long run will both be unchanged due to this change in nominal wages. _____________ (true/false)
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