Wages and prices will decrease when unemployment is below the natural rate.

Question

Quizplus · Accepted Answer

This statement is incorrect. When unemployment is below the natural rate, it means that the labor market is tight and there is more demand for labor than supply. This can lead to higher wages as employers compete for a limited pool of workers. Higher wages, in turn, can lead to increased production costs and eventually higher prices for goods and services.

Wages and Prices Will Decrease When Unemployment Is Below the Natural