For this question,assume that firms' of productivity are accurate while workers' expectations of productivity adjust slowly over time.In this case,an increase in productivity will cause which of the following?
A)an increase in both the real wage and the natural rate of unemployment
B)a decrease in both the real wage and the natural rate of unemployment
C)an increase in the real wage and a reduction in the natural rate of unemployment
D)a decrease in the real wage and an increase in the natural rate of unemployment
E) none of the above

Question

Quizplus · Accepted Answer

If firms' productivity is accurate and there is an increase in productivity, they will be able to produce more output with the same amount of labor input. This leads to an increase in the demand for labor, and as a result, the real wage increases. However, workers' expectations of productivity adjust slowly, so they may not realize the full extent of the increase in productivity initially. As a result, there may be a reduction in the natural rate of unemployment, as more workers are willing to supply their labor at the higher real wage. Therefore, option C is the correct answer.

For This Question,assume That Firms' of Productivity Are Accurate While