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afrah afrah
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In 2011, Greece was in an economic crisis but could not depreciate its currency to expand employment as it was part of the Euro. One measure it took instead was to impose wage controls that specifically reduced the wages and salaries in the country. The hope was that such a policy would increase competitiveness by getting a decrease in the real exchange rate. How would such a policy work?

▸ Falling wages would cause an appreciation of the nominal exchange rate allowing the real exchange rate to also fall.

▸ Falling wages would cause a depreciation of the nominal exchange rate allowing the real exchange rate to also fall.

▸ As wages fall, the price level in Greece would fall, resulting in a lower real exchange rate even if the nominal exchange rate stayed the same.

▸ As wages fall, the price level in Greece would rise, resulting in a lower real exchange rate even if the nominal exchange rate stayed the same.
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Macroeconomics

Macroeconomics


Edition: 3rd
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lulllull
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As wages fall, the price level in Greece would fall, resulting in a lower real exchange rate even if the nominal exchange rate stayed the same.
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