The article explores how wage indexation and monetary policy can respond to supply shocks. By analyzing different rules for stabilizing employment or real wages, the researchers found that indexing wages to nominal GNP is more beneficial than indexing to the CPI or value-added price index. Similarly, targeting the money supply to nominal GNP is more effective than targeting it to the value-added price index or CPI. The optimal policy depends on whether the demand for labor is more elastic than the supply. If demand is more elastic, policies that stabilize employment are more efficient, while if supply is more elastic, policies that stabilize the real wage are better.