If workers and firms expect that inflation will be 5 percent next year, and real wages are not changing over time, by how much will nominal wages increase?
A) less than 5 percent B) more than 5 percent
C) 5 percent D) depends on actual inflation for next year
Question 2
The price level in the economy between 2014 and 2015 rose from 100 to 110. Between 2015 and 2016, the price level rose from 110 to 121. How does the short-run Phillips curve predict the unemployment rate will change as a result?
A) The unemployment rate will increase since inflation increased.
B) The unemployment rate will decrease since inflation increased.
C) The unemployment rate will decrease since inflation decreased.
D) The unemployment rate will not change since there is no change in the rate of inflation.
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