Pregunta
Question 10
An unanticipated reduction in the level of prices in the goods and services market, which results in a temporary increast in real
wage rates, will
(1) result in an actual rate of unemployment that is less than the natural rate of
unemployment.
(2) reduce the natural rate of unemployment.
(3) resease the natural rate of unemployment.
(4) in an actual rate of unemployment that is greater than the natural rate of
unemment.
An unanticipated reduction in the level of prices in the goods and services market, which results in a temporary increast in real
wage rates, will
(1) result in an actual rate of unemployment that is less than the natural rate of
unemployment.
(2) reduce the natural rate of unemployment.
(3) resease the natural rate of unemployment.
(4) in an actual rate of unemployment that is greater than the natural rate of
unemment.
Ask by Riley Conner. in Cayman Islands
Mar 31,2025
Solución de inteligencia artificial de Upstudy
Respuesta verificada por el tutor
Responder
An unexpected drop in prices increases real wages, making labor more expensive. This leads to firms hiring fewer workers, resulting in unemployment that’s higher than the natural rate. So, the correct answer is that the actual unemployment rate becomes greater than the natural rate.
Solución
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The concept involves an unanticipated reduction in the overall price level in the goods and services market. When prices unexpectedly drop, many nominal wages remain fixed in the short run.
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With nominal wages rigid, a reduction in the price level causes a temporary increase in the real wage. We can express the real wage as:When the price level decreases while the nominal wage remains constant, the real wage increases.
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Because the real wage is higher than the equilibrium level, firms find labor more expensive. As a consequence, they hire fewer workers than they would at the equilibrium real wage.
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In the short run, this results in an actual rate of unemployment that exceeds the natural rate of unemployment. The natural rate is determined by structural factors and friction in the labor market, whereas the actual rate temporarily rises due to the unexpected shock.
Hence, the correct answer is:
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Simplifique esta solución Mind Expander
Did you know that the concept of the natural rate of unemployment was popularized by economist Milton Friedman? He argued that economies operate best when they’re perfectly balanced, with a certain level of unemployment being necessary for healthy job market dynamics. When prices drop unexpectedly and real wages temporarily increase, this can lead to the hiring of more workers as firms adjust to lower operational costs, thus possibly pushing the actual unemployment rate below this natural rate.
In real-world applications, such phenomena manifest during economic recessions or periods of deflation. For instance, when prices decrease unexpectedly, businesses might initially hesitate to lay off employees in such an environment, resulting in a unique situation where the labor market may temporarily appear healthier than reported historically. However, this can also lead to longer-term adjustments like wage cuts or layoffs if deflation continues, creating a cycle of job uncertainty.
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