3. Now suppose that the government adopts policies that make it more difficult for foreign companies to enter local markets. If we assume that the level of employment and the supply of labor remain constant, which of the following statements about inflation-creating mechanisms is correct? (There may be more than one correct answer). A. With reduced competition, companies can now set a higher profit margin on their costs, which raises the pricing curve. B. The labor market is not in equilibrium due to the reduction in real wages, since workers now lack incentives to work at the existing level of unemployment. Therefore, wages will increase, which is reflected in an upward shift in the wage setting curve. C. If companies can continue to collect the new (higher) profit margin now applied to the new higher wage, prices rise again, lowering the real wage until it adjusts to the pricing curve.

Unemployment rates have been higher in many European countries in recent decades than in the United States. Is the main reason for this long-term difference in unemployment rates more likely to be cyclical unemployment or the natural rate of unemployment? Explain briefly.

Inflation rates, like most statistics, are imperfect measures. Can you identify some ways that the inflation rate for fruit does not perfectly capture the rising price of fruit?

Do neoclassical economists see a value in tolerating a little more inflation if it brings additional economic output? Explain your answer.

Suppose Lori agrees to lend her sister Holly $1000 for one year at a fixed nominal rate of interest. Suppose further that, at the time the loan is made, Lori expects the rate of inflation to be 4 percent and Holly expects it to be 3 percent over the course of the year. If the actual inflation rate turns out to be 5 percent, then Lori will be off and Holly will be off than expected, everything else held constant. Select one: O A. better; better O B. worse; worse O C. better; worse OD. worse; better

Which of the following does not influence the rate of inflation? O a. The number of people affected by inflation O b. the rate of trade with other countries O c. The rate of growth in other countries O d. The rate at which prices are rising

High and unexpected inflation has a greater cost Select one: O a. for those who hold a little money than for those that hold a lot of money O b. for savers in high income tax brackets than for savers in low income tax brackets O c. for those whose wages increase by as much as inflation than for those who are paid a fixed nominal wage O d. for those who borrow than for those who save

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A generalization of the fisher effect that can be applied to other variables is the relationship between real price growth and nominal price growth if we know the inflation rate. We can express this relationship T, where g is the growth rate (real or nominal) and t is inflation rate. Use this as greal information for problems 10-12. gnomial - 10. Assume that data shows the nominal price of a new Nissan Maxima was $12,000 in 1992 and $15,000 in 2002, but you also found a reliable source that claimed real price growth for Maximas this claim about real price growth A) 16.5% B) 5% C) 10% D) 8.5% E) Not enough information to determine was closer to 8.5%. For experienced from 1992 to 2002? to be true, how much inflation was 11. Assume that the inflation rate is the level you found in 10. If the real price growth for a Mercedes- AMG was 10%, and the nominal price in 1992 was 2002? $42,000; what is the nominal price of the Mercedes in A) $50,000 B) $53,130 C) $56,750 D) $60,070 E) $77,000 12.…