Suppose that last year the unemployment rate was 5 percent and the inflation rate was 2.5 percent. If the natural rate of unemployment is 5 percent, how do you expect inflation to change?
What will be an ideal response?
Inflation is stable when the unemployment rate is equal to the natural rate of unemployment. Since last year's unemployment rate was equal to the natural rate of unemployment, the inflation rate should not change.
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The figure above shows a labor market. If this labor market is perfectly competitive, the wage rate is
A) $4 per hour. B) $6 per hour. C) $8 per hour. D) $10 per hour.
When consumers pay only a fraction of the true cost of medical services, their demand increases. The marginal cost of producing these extra services
A) is greater than the marginal benefit consumers receive from them. B) is less than the marginal benefit consumers receive from them. C) is equal to the marginal benefit consumers receive from them. D) is zero due to the insurance payments.