Author Question: For this question, assume that expectations of productivity growth adjust slowly. Now, suppose that ... (Read 109 times)

newyorker26 · **on:** Jun 30, 2018

For this question, assume that expectations of productivity growth adjust slowly. Now, suppose that there is a 5 increase in productivity. Explain how this 5 increase in productivity can cause changes in the unemployment rate.

What will be an ideal response?

Question 2

Which of the following is not included as a component of the M1 definition of money?

A) bonds
B) checkable deposits
C) coins and bills held by the nonbank public
D) all of the above
E) none of the above

Heffejeff · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

The PS curve will shift up as productivity growth occurs; however, it will now shift up by a greater amount. If expectations of productivity are slow to adjust, the WS curve continues to shift up by a smaller amount (based on past increases in A ). The real wage will rise by the actual change in productivity. The unemployment rate will, however, decrease because of the smaller shift in the WS curve.

Answer to Question 2

A