Workers and firms are currently expecting the price level to increase from 110 to 114. The Federal Reserve then announces that it will be reducing the growth rate of the money supply
If the Fed's announcement is credible, and firms and workers have rational expectations, describe how the expectations of firms and workers will be affected and how the change in expectations will affect the unemployment rate.
Workers and firms were expecting an inflation rate of 3.6%, but when the Fed announces it will be reducing the money supply, workers and firms rationally expect this will reduce inflation. Based on the expectation that inflation will fall, workers are willing to accept lower nominal wages and firms will pay lower nominal wages so that the real wage is unchanged. If the real wage is unchanged, the level of employment remains the same, and there is no impact on the unemployment rate.
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A proportional tax is defined as a tax for which the
a. average tax rate rises as income increases. b. average tax rate falls as income increases. c. average tax rate remains constant at all levels of income. d. dollar tax liability of those with higher income is the same as the dollar tax liability of those with lower income.
If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500
a. True b. False Indicate whether the statement is true or false