Assume That Expectations of Productivity Are Slow to Adjust

question 36

Multiple Choice

Assume that expectations of productivity are slow to adjust. Further assume that A had been increasing by 2% a year. Now suppose that A increases by 6% in period t. This increase in productivity growth will cause:

• A) the real wage to rise and no change in the natural rate of unemployment.
• B) the PS and WS relations to shift up by the same amount.
• C) the WS relation to shift up more than the PS relation.
• D) the real wage to fall.
• E) the natural rate of unemployment to fall.

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