Both union and management representatives agree to a 10% to wage increase because they expect prices to rise by 10% during the next year. Assume that the actual inflation rate is 11% over the following year. Why would the unemployment rate probably increase if the actual rate of inflation next year is 11%? Prices of goods and services will increase relative to resource prices. In the short run, profit margins will increase and firms will cut back on output. This will cause layoffs and increase unemployment. Prices in the goods and services will fall relative to resource prices. In the short run, profit margins will fall and firms will cut back on output. This will cause layoffs and increase unemployment.

Both union and management representatives agree to a 10% to wage increase because they expect prices to rise by 10% during the next year. Assume that the actual inflation rate is 11% over the following year. Why would the unemployment rate probably increase if the actual rate of inflation next year is 11%? Prices of goods and services will increase relative to resource prices. In the short run, profit margins will increase and firms will cut back on output. This will cause layoffs and increase unemployment. Prices in the goods and services will fall relative to resource prices. In the short run, profit margins will fall and firms will cut back on output. This will cause layoffs and increase unemployment.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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