Assume That Expectations of Productivity Are Slow to Adjust

question 29

Multiple Choice

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

• A) the WS relation to shift up more than the PS relation.
• B) the PS and WS relations to shift up by the same amount.
• C) the real wage to fall.
• D) the PS relation to shift up more than the WS relation.
• E) the natural rate of unemployment to fall.

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