How can the difference between the current unemployment rate and the natural rate of unemployment help explain changes in inflation?
What will be an ideal response?
When the current unemployment rate is greater than the natural rate, there is slack in the labor market, so wage increases will be limited, as will firms' costs of production. So, the inflation rate will decrease.
You might also like to view...
Over time, the terms of trade of Latin American countries have generally ________, and the terms of trade of developed countries have generally ________
A) worsened; worsened B) worsened; improved C) improved; worsened D) improved; improved
Answer the following statements true (T) or false (F)
1) The "sticky price" model is the only one used by macroeconomists. 2) (Consider This) The term "economic investment" refers only to money spent purchasing newly created capital goods such as factories, tools, and warehouses. 3) (Consider This) If a farmer purchases 10 acres of farmland from a neighboring farmer, this would be considered an economic investment. 4) (Consider This) If Ford Motor Company purchases factory equipment previously used by General Motors, this would be considered an economic investment.