Assume That Expectations of Productivity Growth Adjust Slowly Over Time

question 3

Multiple Choice

Assume that expectations of productivity growth adjust slowly over time. For this economy, a decrease in productivity will most likely cause which of the following to occur?

• A) An increase in the natural rate of unemployment.
• B) A decrease in the markup over labour costs.
• C) An increase in the markup over labour costs.
• D) A decrease in the natural rate of unemployment.
• E) A decrease in the real wage.

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Definitions:

Average Variable Cost

is the cost that varies with the level of output, calculated by dividing the total variable costs by the quantity of output produced.

Diminishing Returns

A rule that asserts when one input in the production process is augmented without changes to the others, there will ultimately be a decline in output after reaching a specific level.

Average Fixed Cost

The cost per unit that remains constant regardless of the level of production or output.

Output

The total amount of goods or services produced by a company or economy.