Among other things, which of the following determines the long-run average unemployment rate and inflation, respectively?
A)the market power of unions; government spending
B)the minimum wage; the money supply growth rate
C)the rate of growth of the money supply; the market power of unions
D)efficiency wages; the extent to which firms are competitive

Question

Quizplus · Accepted Answer

The long-run average unemployment rate is determined by factors such as the natural rate of unemployment, demographic changes, and labor market institutions like the minimum wage. The money supply growth rate is a key determinant of inflation in the long run, as per the Quantity Theory of Money. Hence, option B is the correct choice. Option A is incorrect as the market power of unions and government spending can affect short-term economic outcomes rather than long-term averages. Option C is incorrect as the rate of growth of the money supply is already included in option B, while the market power of unions is not a factor in determining inflation. Option D is incorrect as efficiency wages and competition among firms can affect short-term unemployment rates rather than long-run averages.

Among Other Things, Which of the Following Determines the Long-Run