Suppose That the Natural Rate of Unemployment for the Economy

question 80

Essay

Suppose that the natural rate of unemployment for the economy is 6 percent and the economy is currently experiencing a 4 percent unemployment rate. Explain what will likely happen to wages and prices as the economy adjusts to the long- run equilibrium.

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Definitions:

Raw Materials

These are the basic, unprocessed inputs used in manufacturing to produce finished goods.

Selling and Administrative Expense Budget

A detailed plan that estimates the expenses related to selling products and managing the business.

Fixed Costs

Costs that remain constant regardless of the amount of output or sales.

Variable Costs

Costs that change in proportion to the level of production or sales activity.