Suppose the actual price level exceeds the expected price level reflected in long-term contracts.How will unemployment be affected?
A) Unemployment will increase.
B) Unemployment will decrease.
C) Unemployment will stay the same.
D) Unemployment will become underemployment.

Question

Suppose the actual price level exceeds the expected price level reflected in long-term contracts.How will unemployment be affected?  
A) Unemployment will increase. 
B) Unemployment will decrease. 
C) Unemployment will stay the same. 
D) Unemployment will become underemployment.

Quizplus · Accepted Answer

When the actual price level exceeds the expected price level, firms find themselves selling goods and services at higher prices than anticipated. This often leads to higher profits, encouraging firms to expand production and hire more workers, thus decreasing unemployment.

Suppose the Actual Price Level Exceeds the Expected Price Level