The unemployment rate in Utopia rose to 12% when the country was passing through a recession. How will the labor market in Utopia be affected if an expansionary monetary policy triggers an inflation in the economy?
What will be an ideal response?
If there is persistent inflation in the economy, output prices in Utopia will continue to rise. As output prices increase, firms in Utopia will expand production. As firms expand production, the demand for labor will increase. As a result, the labor demand curve will shift to the right. Inflation will also cause the firm's labor supply curve to shift to the left because a given wage will have a lower purchasing power. As these inflation-induced shifts continue, equilibrium unemployment rate will decline and equilibrium wage will rise. Equilibrium employment falls because the shift in labor supply is smaller than the shift in labor demand.
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At least one economist has suggested that even large developing-country cities are economically too small. What argument would support this contention? How would you argue against it?
What will be an ideal response?
A lower real interest rate, amount of consumer debt, and personal taxes ________ personal consumption expenditures
A) increase B) decrease C) have no effect on D) none of the above