Workers at a local mining company are paid $25.60 per hour, and they have incorporated a 3 percent annual raise in their contracts to account for expected inflation
Explain how unexpected inflation of 5 percent will affect the real wage and the unemployment rate.
If actual inflation is 3%, a 3% increase in wages will allow workers to maintain their real wage. However, if inflation is higher than expected (5% instead of 3%), the 3% increase in wages will reduce the real wage, and firms will hire more workers than they had planned. As a result, unemployment will fall.
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In the figure above, for the 3,000th unit, the maximum price a consumer is willing to pay is
A) $5. B) $10. C) $15. D) $0. E) $25.
The risk that a borrower has a greater understanding about their potential future behavior than a potential lender is known as ________
A) the problem of adverse selection B) the problem of moral hazard C) ornamental torsion D) the asymmetric innovation problem