One explanation that economists offer to explain why a decline in the unemployment rate can raise the rate of inflation is that
A) firms will be put in a position of competing more intensely for scarce resources.
B) people will pay higher prices because competition among suppliers intensifies.
C) workers will focus more directly on protecting their jobs.
D) firms will refuse to shift higher labour costs along to consumers for fear of losing their markets.

Question

Quizplus · Accepted Answer

A decline in the unemployment rate means there are fewer people looking for jobs. This puts pressure on firms to compete more intensely for the remaining pool of job seekers, leading to higher wages and salaries. With higher labour costs, firms may raise the prices of their goods and services to maintain their profit margins, leading to inflation.

One Explanation That Economists Offer to Explain Why a Decline