For this question, assume that expectations of productivity growth adjust slowly. Now, suppose that there is a 3% reduction in productivity. Explain how this 3% reduction in productivity can cause changes in the unemployment rate
What will be an ideal response?
The PS curve will shift up as productivity growth occurs; however, it will not shift up as much. If expectations of productivity are slow to adjust, the WS curve continues to shift up by a larger amount (based on past increases in A ). The real wage will rise by the actual change in productivity. The unemployment rate will, however, increase because of the larger shift in the WS curve.
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a. True b. False Indicate whether the statement is true or false
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An increase in the capital stock will:
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