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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Everything else held constant, when a country's currency depreciates, its goods abroad become ________ expensive while foreign goods in that country become ________ expensive
A) more; less B) more; more C) less; less D) less; more
The main argument in favor of the existence of a natural rate of unemployment in the long run focuses on what argument?
A. Wages will always adjust to make the long-run unemployment rate zero percent. B. The government cannot affect inflation in the long run. C. Workers refuse to be unemployed in the long run. D. Workers will adjust their inflationary expectations in the long run so that unemployment is unrelated to inflation. E. Firms need to be at full employment in the long run.
You value your favorite shirt at $110. Someone else values it at $150, and that person is willing to pay you $120 for your shirt. Would selling your shirt to this person for $120 be Pareto efficient?
A. Yes, because both of you are better off as a result of the trade. B. No, because you did not receive the maximum amount the other person would have been willing to pay for the shirt. C. No, the person paid you $120 for the shirt so his net benefit was $30, while your net benefit was $10. For this change to be Pareto efficient, each of you should have the same net benefit. D. Yes, because even though you gain from the trade and he loses, there is the potential for you to compensate him for his loss.
How could the omission of net exports from GDP overstate production? Or understate it?
What will be an ideal response?