If the actual price level is lower than the expected price level reflected in long-term contracts,
A) the actual rate of unemployment will be less than the natural rate of unemployment.
B) the actual rate of unemployment will exceed the natural rate of unemployment.
C) the natural rate of unemployment will rise.
D) the natural rate of unemployment will fall.

Question

Quizplus · Accepted Answer

When the actual price level is lower than expected, firms may reduce production due to lower profitability, leading to layoffs and higher unemployment, causing the actual unemployment rate to exceed the natural rate.

If the Actual Price Level Is Lower Than the Expected