When the unemployment rate is on the horizontal axis and the real wage is on the vertical axis,an increase in productivity will cause which of the following to occur?
A)The wage-setting and price-setting curves will both shift downward.
B)The wage-setting and price-setting curves will both shift upward.
C)The price-setting curve to shift downward, and no shift in the wage-setting curve.
D)The wage-setting curve to shift upward, and the price-setting curve to shift downward.
E) The wage-setting curve to shift downward, and the price-setting curve to shift upward.

Question

Quizplus · Accepted Answer

An increase in productivity typically leads to higher wages as firms can afford to pay more due to increased output per worker. This results in both the wage-setting (which reflects the wage workers negotiate based on productivity and other factors) and price-setting (which reflects the wage firms are willing to pay based on productivity and the price at which they can sell goods) curves shifting upward. Higher productivity makes labor more valuable, leading to upward shifts in these curves.

When the Unemployment Rate Is on the Horizontal Axis and the Real