Whenever the unemployment rate is pushed _______ the natural rate, wages begin to _______ , thus pushing _______.
A) below; fall; down costs
B) above; rise; up costs
C) above; fall; down aggregate output
D) above; fall; down costs

Question

Quizplus · Accepted Answer

When the unemployment rate is pushed above the natural rate, there is a surplus of labor in the market which puts pressure on wages. As a result, wages begin to fall, as stated in choice D. This decrease in wages leads to a decrease in costs for firms, as they are able to pay their employees less. This can lead to a decrease in prices and an increase in demand for goods and services, which in turn can lead to an increase in output. However, the decrease in demand due to high unemployment can also lead to a decrease in aggregate output. Therefore, choice D is the best answer.

Whenever the Unemployment Rate Is Pushed _______ the Natural Rate