If workers successfully demand higher wages, but monetary policy is not accommodative, then the unemployment rate will _____ in the short run and _____ in the long run.

Question

Quizplus · Accepted Answer

In the short run, if workers demand and receive higher wages without an accommodative monetary policy (meaning the central bank does not increase the money supply to offset the wage increase), businesses may cut back on hiring due to higher labor costs, leading to higher unemployment. In the long run, however, the economy may adjust through various mechanisms such as increased spending due to higher wages, and productivity improvements, potentially leading to a fall in unemployment as the economy grows.

If Workers Successfully Demand Higher Wages, but Monetary Policy Is