Econia's Unemployment Rate Is 2%, and Its Natural Rate of Unemployment

question 6

Multiple Choice

Econia's unemployment rate is 2%, and its natural rate of unemployment is 4.5%. Which of the following describes a way that Econia's economy could return to its natural rate of unemployment?

• A) Over time, the wage rates will drop, which causes workers to drop out of the labor force.
• B) The government might reduce taxes to increase the purchasing power of consumers.
• C) The government might increase the money supply to stimulate the economy.
• D) Over time, wages will rise, which causes the costs of production to rise and output to fall.

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Definitions:

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