Last year, the unemployment rate was 4 percent and the inflation rate was 3 percent. If the natural rate of unemployment is 3 percent, how do you expect inflation to change?
What will be an ideal response?
Inflation is only stable when the unemployment rate is equal to the natural rate of unemployment. Since last year's unemployment rate was above the natural rate of unemployment, the inflation rate will eventually increase as the economy moves up the short-run Phillips curve.
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If Bobby thinks that leisure is an inferior good, then his labor supply curve
A) is backward bending. B) is always negatively sloped. C) is always positively sloped. D) does not exist.
If water is essential for life, while diamonds are not, then why is water cheaper than diamonds?
a. Because most people would rather die with a big diamond ring than live without one. b. Because the total utility generated by diamonds is larger than the total utility generated by water. c. Because most people do not understand their total need for water. d. Because water is abundant, the marginal utility of water is low, and price reflects marginal utility, not total utility.